<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1998
REGISTRATION NO. 333-50333
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BEBE STORES, INC.
(Exact name of Registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
CALIFORNIA 5621 94-2450490
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Number) Identification
incorporation or organization) No.)
</TABLE>
------------------------
380 VALLEY DRIVE BRISBANE, CALIFORNIA 94005
(415) 715-3900
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------
MANNY MASHOUF
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BEBE STORES, INC.
380 VALLEY DRIVE
BRISBANE, CALIFORNIA 94005
(415) 715-3900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
ERIC J. LAPP, ESQ. ALAN K. AUSTIN, ESQ.
JOHN M. FOGG, ESQ. SUSAN L. STAPLETON, ESQ.
LILLIEMAE I. STEPHENS, ESQ. JAMES C. CREIGH, ESQ.
Gray Cary Ware & Freidenrich LLP Wilson Sonsini Goodrich & Rosati
400 Hamilton Avenue Professional Corporation
Palo Alto, California 94301-1825 650 Page Mill Road
(650) 328-6561 Palo Alto, California 94304-1050
(650) 493-9300
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 19, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[LOGO]
2,500,000 SHARES
COMMON STOCK
------------------
Of the 2,500,000 shares of Common Stock offered hereby, 1,250,000 shares are
being sold by bebe stores, inc. ("bebe" or the "Company") and 1,250,000 shares
are being sold by a shareholder of the Company (the "Selling Shareholder"). See
"Principal and Selling Shareholder." The Company will not receive any proceeds
from the sale of shares by the Selling Shareholder. Prior to this offering,
there has been no public market for the Common Stock of the Company. It is
estimated currently that the initial public offering price will be between
$11.00 and $13.00 per share. See "Underwriting" for information related to the
method of determining the initial public offering price.
Upon consummation of this offering, Manny Mashouf, the Company's Chief
Executive Officer, President and Chairman of the Board, will own approximately
88.4% (approximately 86.9% if the Underwriters' over-allotment option is
exercised in full) of the outstanding shares of Common Stock. As a result, Mr.
Mashouf will continue to have effective control over the outcome of
substantially all issues submitted to the Company's shareholders, including the
election of all of the Company's directors. See "Principal and Selling
Shareholder."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING AT PAGE 8.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) SHAREHOLDER
<S> <C> <C> <C> <C>
Per Share......... $ $ $ $
Total (2)......... $ $ $ $
</TABLE>
(1) Before deducting estimated offering expenses of $700,000, all of which are
payable by the Company.
(2) The Selling Shareholder has granted the Underwriters a 30-day option to
purchase up to an additional 375,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such over-allotment option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Selling Shareholder will be $ ,
$ , and $ , respectively.
------------------------------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS BEAR, STEARNS & CO. INC.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[WOMAN IN BEBE CLOTHING]
GATEFOLD
(1) [WOMAN IN BEBE CLOTHING]
(2) [STORE EXTERIOR AND INTERIOR]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON STOCK,
INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS
OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE TRANSACTIONS, SEE
"UNDERWRITING."
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR ANY OFFER TO OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Summary..................................................................................................... 4
Risk Factors................................................................................................ 8
Use of Proceeds............................................................................................. 15
Dividend Policy............................................................................................. 15
Capitalization.............................................................................................. 16
Dilution.................................................................................................... 17
Selected Financial and Operating Data....................................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 19
Business.................................................................................................... 25
Management.................................................................................................. 35
Certain Transactions........................................................................................ 40
Principal and Selling Shareholder........................................................................... 41
Description of Capital Stock................................................................................ 42
Shares Eligible for Future Sale............................................................................. 44
Underwriting................................................................................................ 46
Legal Matters............................................................................................... 47
Experts..................................................................................................... 47
Change in Accountants....................................................................................... 47
Additional Information...................................................................................... 48
Index to Financial Statements............................................................................... F-1
</TABLE>
------------------------
"bebe" and "bebe moda" are registered trademarks of the Company in the
United States and certain foreign jurisdictions. All other trademarks or trade
names referred to in this Prospectus are the property of their respective
owners. The Company was incorporated in California in June 1976.
The Company's principal executive offices are located at 380 Valley Drive,
Brisbane, California 94005, and its telephone number at that address is (415)
715-3900.
3
<PAGE>
SUMMARY
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. REFERENCES TO A FISCAL YEAR RELATE TO THE
FISCAL YEAR ENDING JUNE 30 OF SUCH YEAR. ALL SHARE NUMBERS IN THIS PROSPECTUS
REFLECT A 2.83-FOR-1 SPLIT IN THE COMPANY'S COMMON STOCK EFFECTED APRIL 9, 1998.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," AND THE FINANCIAL STATEMENTS AND NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
bebe designs, develops and produces a distinctive line of contemporary
women's apparel and accessories, which it markets under the bebe and bebe moda
brand names through its 85 specialty retail stores located in 21 states. While
bebe attracts a broad audience, the Company's target customers are 18 to 35
year-old women who seek current fashion trends interpreted to suit their
lifestyle needs. The "bebe look," with an unmistakable hint of sensuality,
appeals to a hip, sophisticated, body-conscious woman who takes pride in her
appearance. The bebe customer is a discriminating consumer who demands value in
the form of quality at a competitive price. bebe's broad product offering
includes suits, tops, pants, skirts, dresses, logo and other activewear,
outerwear, and handbags and other accessories. Much of the Company's merchandise
is designed and developed in-house and manufactured to its specifications. The
balance is developed primarily in conjunction with third party apparel
manufacturers or, in some cases, selected directly from these manufacturers'
lines.
Founded by Manny Mashouf, the Company's current Chairman, President and
Chief Executive Officer, bebe opened its first store in San Francisco,
California in 1976 and grew to 73 stores by the end of fiscal 1996. Since the
end of fiscal 1996, bebe has significantly strengthened its management team and
has begun implementing several strategic initiatives which management believes
have contributed to the Company's recent strong performance and positioned it to
support significant growth over the next several years. These initiatives were
directed to all aspects of the Company's operations and in particular the
merchandising, planning, manufacturing and distribution functions. The Company's
merchandising initiatives focused primarily on expansion of its product line to
include a broader array of tops, pants, dresses, accessories and logo items.
While the Company's traditional bebe product offering spoke to the "nine to
five" needs of a young professional woman, the expanded product line provides
head-to-toe lifestyle dressing at a competitive price that easily adapts from
day into evening. Additionally, the logo portion of the product line, which
highlights the bebe logo on a variety of active and casual styles, enhances
brand awareness while providing younger, "aspirational" customers an entry to
the bebe product line at lower price points. The strategic initiatives relating
to the planning, manufacturing and distribution functions primarily involve the
implementation of more sophisticated procedures and a more disciplined approach
to the operational aspects of the business.
The Company's net sales have grown from $18.1 million in fiscal 1993 to
$95.1 million in fiscal 1997, representing a compounded average growth rate of
51.4%. As a result of the management team additions and strategic initiatives
implemented beginning at the end of fiscal 1996, the Company has experienced a
significant improvement in performance. In particular, the Company's net sales
grew from $71.6 million in fiscal 1996 to $95.1 million in fiscal 1997, an
increase of 32.8%, due in part to an increase in comparable store sales of
18.0%. In addition, the Company's income from operations as a percentage of net
sales grew from 0.7% to 8.9% during the same period. Furthermore, for the nine
months ended March 31, 1998, the Company's net sales reached $108.1 million, an
increase of 58.0%, compared to the same nine-month period in fiscal 1997 and its
income from operations increased from 8.1% of net sales to 19.2%.
4
<PAGE>
OPERATING STRATEGY
While the market for women's apparel is extremely large, the Company
believes that the distinctive, contemporary, bebe point-of-view addresses an
underserved market segment and presents the Company with opportunities for
future growth. The Company's objective is to become a global brand, offering
quality merchandise that enhances the spirit and playful sensuality of the
contemporary woman. The principal elements of the Company's operating strategy
to achieve this objective are as follows:
- PROVIDE DISTINCTIVE FASHION THROUGHOUT A BROAD PRODUCT LINE. bebe
merchandisers take their fashion inspiration from throughout the world,
interpreting contemporary ideas for silhouettes, fabrications and colors
into products and styles to meet the everyday lifestyle needs of the bebe
customer. While many of the Company's styles and products are represented
season after season with variations in color, fabric or trim, its
merchandisers are committed to bringing newness into the merchandise mix
in response to emerging trends. bebe's product lines are carefully planned
to represent a broad array of sleek, fashionable goods, with particular
emphasis on career wear, related separates and day-into-evening styles.
The bebe product line is further supported by a broad selection of
accessories that help bebe customers create a distinctive ensemble, while
logo-embellished items provide an entry point for younger, aspirational
customers.
- VERTICALLY INTEGRATE DESIGN, PRODUCTION, MERCHANDISING AND RETAIL
FUNCTIONS. The Company believes that its vertical integration of processes
from design to market coupled with its financial discipline enable it to
produce distinctive quality merchandise of exceptional value. Once a line
is conceived by the merchandise team, bebe maintains flexibility in its
sourcing by subcontracting production of its own designs, developing
exclusive products in conjunction with third party apparel manufacturers,
or selecting merchandise directly from these manufacturers' lines. This
approach also enables the Company to respond quickly to changing fashion
trends, while reducing its risk of excess inventory.
- MANAGE MERCHANDISE MIX. The Company believes that a disciplined approach
to merchandising and a proactive inventory management program is critical
to its success. By actively monitoring sell-through rates and managing the
mix of categories and products in its stores, the Company believes it is
able to respond to emerging trends in a timely manner; minimize its
dependence on any particular category, style or fabrication; and preserve
a balanced, coordinated presentation of merchandise within each store.
- CONTROL DISTRIBUTION OF MERCHANDISE. bebe believes that its brand image is
greatly enhanced by distributing its products exclusively through bebe
stores. This controlled distribution strategy enables the Company to
display the full assortment of its products, control the pricing, visual
presentation and flow of goods, test new products and reinforce the
brand's identity in the eyes of its customers.
- ENHANCE BRAND IMAGE. Through an edgy, high-impact, visual advertising
campaign utilizing print, outdoor, in-store and direct mail communication
vehicles, the Company attracts customers who are intrigued by the
playfully sensual and evocative imagery of the bebe lifestyle. The Company
also offers a line of merchandise branded with the distinctive bebe logo
to increase brand awareness. Within its stores, the Company seeks to
create an upscale boutique environment that further enhances the bebe
brand and builds customer loyalty and demand for bebe merchandise.
Furthermore, the Company trains bebe sales associates to be responsive and
knowledgeable and encourages them to reflect the bebe image.
5
<PAGE>
GROWTH STRATEGY
bebe's objective is to grow its operations in a controlled manner, primarily
through the opening of new stores. After intentionally slowing its store
expansion in fiscal 1997 and 1998 while implementing strategic initiatives begun
in fiscal 1996, the Company believes it is now positioned to accelerate its
store opening program. With seven stores planned for opening in fiscal 1998, six
of which have been opened to date, the Company currently plans to open
approximately 15 stores in each of fiscal 1999 and 2000, the majority of which
will be in existing markets. In addition to its domestic expansion, the Company
is considering international expansion primarily through licensing arrangements
and has entered into a license agreement with a company in Mexico. Additionally,
the Company continually reviews its existing store base and has identified four
underperforming stores that it is considering closing prior to the end of fiscal
1999.
In addition, the Company plans to grow through product line extensions,
introduction of new product categories, such as intimate apparel, and
incremental operational improvements. The Company has recently hired a Vice
President of Licensing to explore opportunities for licensing the bebe name for
the development of product line extensions or new product categories that may
include eyewear, footwear and swimwear.
To support the introduction of new product categories in recent years as
well as to handle higher sales volumes, the Company has developed a store
prototype that is larger than the average of 2,700 square feet for the Company's
existing stores. The Company's new store prototype is approximately 3,000 to
5,000 square feet, although in certain selected markets the Company may open
larger stores.
The Company was founded in 1970 and incorporated under the name Babe, Inc.
in California in June 1976, and changed its name to bebe stores, inc. in April
1998. The Company's principal offices are located at 380 Valley Drive, Brisbane,
CA 94005. The Company's telephone number is 415-715-3900.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............... 1,250,000 shares
Common Stock offered by the Selling Shareholder... 1,250,000 shares
Common Stock to be outstanding after the
offering......................................... 23,889,997 shares (1)
Use of Proceeds................................... Capital expenditures for new, expanded and relocated stores,
improvements to the Company's management information
systems and expansion or relocation of its corporate
offices and distribution center, with the remainder to be
used for working capital and general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol............ BEBE
</TABLE>
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................................ $ 18,077 $ 32,603 $ 65,411 $ 71,563 $ 95,086 $ 68,397 $ 108,072
Cost of sales, including buying and occupancy........ 9,606 17,222 32,653 44,701 53,969 40,300 53,758
--------- --------- --------- --------- --------- --------- ---------
Gross profit......................................... 8,471 15,381 32,758 26,862 41,117 28,097 54,314
Selling, general and administrative expenses......... 7,745 13,015 23,138 26,364 32,649 22,562 33,559
--------- --------- --------- --------- --------- --------- ---------
Income from operations............................... 726 2,366 9,620 498 8,468 5,535 20,755
Interest and other expenses (income), net............ 59 128 87 472 209 128 (502)
--------- --------- --------- --------- --------- --------- ---------
Earnings before income taxes......................... 667 2,238 9,533 26 8,259 5,407 21,257
Provision (benefit) for income taxes................. 263 912 4,050 (48) 3,110 2,036 8,715
--------- --------- --------- --------- --------- --------- ---------
Net earnings......................................... $ 404 $ 1,326 $ 5,483 $ 74 $ 5,149 $ 3,371 $ 12,542
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic earnings per share (2)......................... $ 0.02 $ 0.06 $ 0.24 $ 0.00 $ 0.23 $ 0.15 $ 0.55
Diluted earnings per share (2)....................... $ 0.02 $ 0.06 $ 0.24 $ 0.00 $ 0.23 $ 0.15 $ 0.53
Basic weighted average shares outstanding (2)........ 22,640 22,640 22,640 22,640 22,640 22,640 22,640
Diluted weighted average shares outstanding (2)...... 22,640 22,640 22,640 22,640 22,651 22,640 23,705
SELECTED OPERATING DATA:
Number of stores:
Opened during period............................... 11 8 24 18 10 7 5
Closed during period............................... 0 0 0 (1) 0 0 (3)
Open at end of period.............................. 24 32 56 73 83 80 85
Net sales per average store (3)...................... $ 958 $ 1,155 $ 1,480 $ 1,065 $ 1,211 $ 884 $ 1,268
Comparable store sales increase (decrease) (4)....... 18.7% 29.5% 35.4% (16.5)% 18.0% 11.3% 43.5%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(5)
--------- ---------------
BALANCE SHEET DATA:
Working capital................................................................................ $ 20,201 $ 33,451
Total assets................................................................................... 46,220 59,470
Long-term debt; including current portion...................................................... 208 208
Shareholders' equity........................................................................... 28,362 41,612
</TABLE>
- ------------
(1) Excludes 1,782,900 shares issuable upon exercise of options outstanding at
March 31, 1998 at a weighted average exercise price of $2.29 per share. See
"Management--Stock Plans."
(2) See Notes 1, 9 and 12 of Notes to Financial Statements for the method used
to calculate earnings per share amounts.
(3) Based on the sum of average monthly net sales per open store for the period.
(4) Based on net sales; stores are considered comparable beginning on the first
day of the first month following the first anniversary of their opening.
(5) As adjusted to reflect the sale of 1,250,000 shares of Common Stock offered
hereby by the Company at an assumed initial public offering price of $12.00
per share, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, and the application of
the estimated net proceeds therefrom. See "Use of Proceeds."
7
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus that are not purely
historical are forward-looking statements, including without limitation,
statements regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. All forward-looking statements in this document
are based upon information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking statements. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not
limited to, those set forth in the following risk factors and elsewhere in this
Prospectus. In evaluating the Company's business, prospective investors should
consider carefully the following factors in addition to the other information in
this Prospectus.
FASHION AND APPAREL INDUSTRY RISKS
The apparel industry is subject to rapidly evolving fashion trends, shifting
consumer demands and intense competition. The Company believes that its future
success will be dependent, in part, on its ability to anticipate, identify and
capitalize upon emerging fashion trends, including products, styles, fabrics and
colors, and to distinguish itself within the women's apparel market. If, for any
reason, the Company misinterprets the current fashion trends or consumer tastes
shift and the Company fails to respond, consumer demand for bebe products and
the Company's profitability and brand image could be significantly impaired.
Additionally, there can be no assurance that competitors of the Company will not
carry similar designs, thus undermining bebe's distinctive image and potentially
having an adverse effect on the Company's financial condition and results of
operation. Furthermore, success in the apparel industry is dependent on a
company's ability to manage its inventory of merchandise in proportion to the
demand for such merchandise. If bebe miscalculates the consumer demand for its
products it may be faced with significant excess inventory and excess fabric for
some products and missed opportunities for others. Weak sales and resulting
markdowns and/or write-offs could cause its profitability to be significantly
impaired. See "Business--Merchandising" and "--Competition."
RISKS OF GROWTH STRATEGY
The Company's continued growth is dependent, to a significant degree, on its
ability to identify sites and open and operate new stores on a profitable basis.
bebe opened 24 stores in fiscal 1995, 18 stores in fiscal 1996, 10 stores in
fiscal 1997 and six stores through May 15 of fiscal 1998. The Company expects to
open one new store during the remainder of fiscal 1998 and approximately 15
stores in each of fiscal 1999 and 2000. Such expansion may include the opening
in selected markets of flagship stores that will be larger and more expensive to
operate than existing stores. If the Company does not generate sufficient
revenues from these flagship stores to cover their higher costs, the Company's
financial results could be negatively affected. The success of this expansion
plan is dependent upon a number of factors, including the availability of
desirable locations, the successful negotiation of acceptable leases for such
locations, the ability to manage the expansion of the store base, the ability to
source inventory adequate to meet the needs of new stores, the ability to
operate stores profitably once opened, the development of adequate management
information systems to support expanded activity, the ability to recruit and
retain new employees, the availability of capital, and general economic and
business conditions affecting consumer confidence and spending. There can be no
assurance that the Company will be able to achieve its planned expansion on a
timely and profitable basis, if at all. In addition, most of the Company's new
store openings in fiscal 1999 and 2000 will be in existing markets. There can be
no assurance that these openings will not result in reduced net sales volumes
and profitability in existing stores in those markets. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Growth Strategy" and "--Stores."
8
<PAGE>
FUTURE RESULTS OF OPERATIONS
Although the Company has been profitable on an annual basis for each of the
past five fiscal years, profitability rates have varied widely from
quarter-to-quarter and from year-to-year. In particular, in fiscal 1996, the
Company experienced a significant financial downturn due to, among other things,
a significant disruption in supply of the Company's key fabrication, difficulty
in obtaining a replacement fabrication, certain related fashion misjudgments,
failure to obtain product deliveries in a timely manner, rapid expansion of the
Company's store base, and lack of sufficient controls and personnel to support
such expanded activity. There can be no assurance that the Company will remain
profitable in the future. Future results of operations will depend on, among
other things, the number and timing of new store openings and the Company's
ability to identify and capitalize upon changing fashion trends, hire and retain
qualified management and other personnel, maintain appropriate inventory levels,
obtain needed raw materials, identify and negotiate favorable leases for
successful store locations, reduce shrinkage and control operating costs. Future
results of operations will also depend on factors outside of the Company's
control, such as general economic conditions, availability of third party
sourcing and raw materials, and actions of competitors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Growth Strategy," "--Merchandising," "--Stores" and "--Competition."
The Company believes that the rate of comparable store sales growth achieved
in recent periods is not sustainable and expects that such growth, if any, in
the current and future periods will be more moderate. Furthermore, during these
recent periods of relatively high comparable store sales growth, the Company has
experienced favorable merchandise margins due to strong sell-through rates and
attendant low markdown rates. As comparable store sales growth moderates, the
Company anticipates a decline in merchandise margins and, accordingly, a
reduction in gross margins. In addition, the Company's selling, general and
administrative expenses have decreased as a percentage of net sales in recent
periods due in part to the rapid growth in net sales. However, the Company
believes that such expenses will increase as a percentage of net sales during
the current and the next several quarters as the Company makes planned
investments to its infrastructure and sales growth moderates. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RELIANCE ON MANAGEMENT INFORMATION SYSTEMS
In the past, the Company's investments in information systems have focused
on its core store, merchandise and financial accounting systems. Currently, the
Company's focus is on upgrading its capabilities and systems associated with its
production, merchandise allocation and distribution functions, which have not
kept pace with the Company's growth. The Company intends to make significant
investments to improve existing management information systems and implement new
systems in these areas and to implement them during fiscal 1999. There can be no
assurance that these enhancements will be successfully implemented. Failure to
implement and integrate such systems could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Information Services and Technology."
NEW MANAGEMENT TEAM; DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the efforts of its key employees, particularly
Manny Mashouf, the founder, Chairman, President and Chief Executive Officer. In
addition, most of the Company's officers and other key personnel have joined the
Company since the middle of fiscal 1996 and, therefore, have relatively little
experience with the Company. None of the Company's executive officers is bound
by an employment agreement, and the relationships of such officers with the
Company are, therefore, at will. The Company does not have "key person" life
insurance policies on any of its employees. The loss of the services of Mr.
Mashouf or any of its key officers or employees could have a material adverse
effect on the Company's business, financial condition and results of operations.
Furthermore, the Company will need to hire experienced executive personnel to
support the planned improvements and expansions of its business; however, there
can be no assurance that the Company will be successful in hiring such personnel
in a time frame necessary to manage and support its expansion plans. See
"Management."
9
<PAGE>
The Company's success also depends to a significant degree on its ability to
attract and retain experienced employees. There is substantial competition for
experienced personnel, which the Company expects to continue. Many of the
companies with which bebe competes for experienced personnel have greater
financial resources than the Company. In the past, the Company has experienced
significant turnover of its retail store personnel. The Company's failure to
attract, motivate and retain qualified personnel could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Store Operations."
DEPENDENCE ON INDEPENDENT MANUFACTURING FACILITIES AND RAW MATERIAL SUPPLIERS
The Company does not own any production facilities and therefore is
dependent on third parties for the manufacturing of its products. Company
merchandise designed by the bebe in-house design team is manufactured by
independent manufacturers with raw materials purchased from independent mills
and other suppliers. The Company places all of its orders for production of
merchandise and raw materials by purchase order and does not have any long-term
contracts with any manufacturer or supplier. The Company competes with other
companies for production facilities and raw materials. In the past, particularly
in fiscal 1996, the Company had difficulty obtaining needed quantities of raw
materials on a timely basis because of competition with other apparel vendors
for raw materials. Such failure to obtain sufficient quantities of raw materials
has had an adverse effect on the Company's financial condition in the past and
may in the future. Furthermore, the Company has received in the past, and may
receive in the future, shipments of products from manufacturers that fail to
conform to the Company's quality control standards. In such event, unless the
Company is able to obtain replacement products in a timely manner, the Company
may lose sales. The Company's failure to maintain favorable relationships with
these production facilities and to obtain an adequate supply of quality raw
materials on commercially reasonable terms could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Merchandising" and "--Sourcing, Quality Control and Distribution."
The violation of labor or other laws by an independent manufacturer of the
Company, or the divergence of an independent manufacturer's labor practices from
those generally accepted as ethical in the United States, could have a material
adverse effect on the Company's business, financial condition, results of
operations and brand image. While the Company recently adopted a policy to
monitor the operations of its independent manufacturers by having an independent
firm inspect these manufacturing sites, the Company cannot control the actions
of such manufacturers, and there can be no assurance that these manufacturers
will conduct their businesses using ethical labor practices.
DEPENDENCE ON THIRD PARTY APPAREL MANUFACTURERS
A significant portion of the Company's merchandise is developed in
conjunction with third party apparel manufacturers and, in some cases, selected
directly from these manufacturers' lines. The Company does not have long-term
contracts with any third party apparel manufacturers and purchases all of the
merchandise from such manufacturers by purchase order. Furthermore, the Company
has received in the past, and may receive in the future, shipments of products
from manufacturers that fail to conform to the Company's quality control
standards. In such event, unless the Company is able to obtain replacement
products in a timely manner, the Company may lose sales. There can be no
assurance that third party manufacturers will not supply similar products to the
Company's competitors, will not cease supplying products to the Company
completely or will supply products that satisfy the Company's quality control
standards. See "Business--Merchandising" and "--Sourcing, Quality Control and
Distribution."
RISK OF FOREIGN SOURCING OF APPAREL
The Company purchases its raw materials from mills and other suppliers, a
significant portion of which is purchased from suppliers outside the United
States, primarily in Japan. A significant portion of the manufacturing of its
merchandise is sourced outside the United States, primarily in Europe and Asia.
The Company is subject to the risks associated with doing business abroad. These
risks include adverse fluctuations in currency exchange rates (particularly
those of the U.S. dollar against certain foreign currencies), changes in import
duties or quotas, the
10
<PAGE>
imposition of taxes or other charges on imports, the impact of foreign
government regulation, political unrest, disruption or delays of shipments and
changes in economic conditions in countries in which the Company's suppliers are
located. The occurrence of any one or more of the foregoing could adversely
affect the Company's business, financial condition and results of operations.
See "Business--Sourcing, Quality Control and Distribution."
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries. These agreements, which have been negotiated bilaterally either under
the framework established by the Arrangement Regarding International Trade in
Textiles, known as the Multifiber Agreement, or other applicable treaties,
impose quotas on the amounts and types of merchandise which may be imported into
the United States from these countries. These agreements also allow the United
States to impose restraints at any time on the importation of categories of
merchandise that, under the terms of the agreements, are not currently subject
to specified limits. The Company's imported products are also subject to United
States customs duties which comprise a material portion of the cost of the
merchandise. A substantial increase in customs duties would have an adverse
effect on the Company's business, financial condition and results of operations.
The United States and the countries in which the Company's products are produced
or sold may, from time to time, impose new quotas, duties, tariffs, or other
restrictions, or adversely adjust prevailing quota, duty, or tariff levels, any
of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition, a significant portion of the Company's foreign-supplied
products is produced by manufacturing facilities in China. There have been a
number of recent trade disputes between China and the United States during which
the United States has threatened to impose punitive tariffs and duties on
products imported from China and to withdraw China's "most favored nation" trade
status. The loss of the most favored nation status for China, changes in current
tariff or duty structures or the adoption by the United States of other trade
polices or sanctions adverse to China could have a material adverse effect on
the Company's business, financial condition and results of operations.
DEPENDENCE ON INTELLECTUAL PROPERTY
The Company believes that its trademarks and other proprietary rights are
important to its success and has registered "bebe" and "bebe moda" in the United
States and certain foreign jurisdictions. There can be no assurance that actions
taken by the Company to establish and protect its trademarks and other
proprietary rights will prevent imitation of its products or infringement of its
intellectual property rights by others. In addition there can be no assurance
that others will not resist or seek to block the sale of the Company's products
as violative of their trademark and proprietary rights.
The Company is seeking to register its trademarks in targeted international
markets which it believes represent large potential markets for the Company's
products. In some of these markets, local companies currently have registered
competing marks, and/or regulatory obstacles exist that may prevent the Company
from obtaining a trademark for the bebe name or related names. In such
countries, the Company may be unable to use the bebe name unless it purchases
the right or obtains a license to use the bebe name. There can be no assurance
that the Company will be able to register trademarks in such international
markets, purchase the right or obtain a license to use the bebe name on
commercially reasonable terms, if at all. Failure to obtain either trademark,
ownership or license rights would limit the Company's ability to expand into
certain international markets or enter such markets with the bebe name, and to
capitalize on the value of its brand.
The Company currently is evaluating its opportunities to expand its product
offering and extend its geographic reach through licensing or joint venture
arrangements. The Company has no prior experience with any such arrangements,
and there can be no assurance that such arrangements will be successful.
Furthermore, while the Company intends to maintain control of the presentation
and pricing of bebe merchandise through the terms of any such agreement, there
can be no assurance that any licensee or joint venture partner will comply with
such contractual provisions. Any deviation from the terms of these contracts may
have a material adverse effect on the Company's brand image. See
"Business--Intellectual Property and Proprietary Rights."
11
<PAGE>
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company has experienced historically, and expects to continue to
experience, quarterly fluctuations in its sales volumes and levels of
profitability. The Company tends to generate larger sales and, to an even
greater extent, profitability levels in the first and second quarters (which
include the fall and holiday selling seasons) of its fiscal year. If for any
reason sales were below seasonal norms during the first and second quarters of
its fiscal year, as they were in fiscal 1996, the Company's quarterly and annual
results of operations would be adversely affected. bebe's quarterly financial
performance may also fluctuate widely as a result of a number of other factors
such as the number and timing of new store openings, acceptance of product
offerings, timing of product deliveries, actions by competitors and
effectiveness of advertising campaigns. Due to these factors, the results of
interim periods are not necessarily indicative of the results for the year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality of Business and Quarterly Results."
COMPETITION
The retail and apparel industries are highly competitive and are
characterized by low barriers to entry, and the Company expects competition in
its markets to increase. The primary competitive factors in the Company's
markets include brand name recognition, product styling, product presentation,
product pricing, store ambiance, customer service and convenience. The Company
competes with traditional department stores, specialty store retailers, off-
price retailers and direct marketers for, among other things, raw materials,
market share, retail space, finished goods, sourcing and personnel. Many of
these competitors are larger and have substantially greater financial,
distribution and marketing resources than the Company. Any failure to compete
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "--Fashion and Apparel Industry Risks"
and "Business--Competition."
SENSITIVITY TO ECONOMIC CONDITIONS AND CONSUMER SPENDING
The retail and apparel industries historically have been subject to
substantial cyclical variation. A recession in the general economy or a decline
in consumer spending in the apparel industry could have a material adverse
effect on the Company's financial performance. Purchases of apparel and related
merchandise tend to decline during recessionary periods and may decline at other
times. There can be no assurance that a prolonged economic downturn would not
have a material adverse impact on the Company or that the Company's customers
would continue to make purchases during a recession.
CONTROL BY PRINCIPAL SHAREHOLDER; POTENTIAL ANTI-TAKEOVER EFFECTS
Upon the completion of this offering, Manny Mashouf, the Chairman, President
and Chief Executive Officer of the Company will beneficially own approximately
88.4% (86.9% if the Underwriters' over-allotment option is exercised) of the
outstanding shares of the Company's Common Stock and as a result, acting alone,
can control the election of directors of the Company and the outcome of all
issues submitted to the shareholders of the Company. These factors may make it
more difficult for a third party to acquire shares, may discourage acquisition
bids for the Company and could limit the price that certain investors might be
willing to pay for shares of Common Stock. Such concentration of stock ownership
may have the effect of delaying, deferring or preventing a change in control of
the Company. See "Principal and Selling Shareholder" and "Description of Capital
Stock."
The Board of Directors has authority to issue up to 1,000,000 shares of
Preferred Stock of the Company, $0.001 par value per share ("Preferred Stock"),
and to fix the rights, preferences, privileges and restrictions, including
voting rights, of these shares without any vote or action by the shareholders.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such Preferred Stock may have other rights, including
12
<PAGE>
economic rights, senior to the Common Stock, and as a result, the issuance of
such Preferred Stock could have a material adverse effect on the market value of
the Common Stock. The Company has no present plan to issue shares of Preferred
Stock. See "Description of Capital Stock."
DEPENDENCE ON SINGLE FACILITY
The Company currently operates a single corporate office and distribution
center in Brisbane, California. Any serious disruption at this facility whether
due to fire, earthquake or otherwise would have a material adverse effect on the
Company's operations and could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Properties."
YEAR 2000 COMPLIANCE
The Company has created a Year 2000 Task Force, which is implementing a
6-phase plan with the objective of ensuring that its management information
systems will record, store, process, calculate and present calendar dates
falling on or after (and if applicable, spans of time including) January 1, 2000
in the same manner, and with the same functionality as it has in years prior to
2000 (collectively, "Year 2000 Compliant"). There can be no assurance that this
6-phase plan will be successful or that Year 2000 Compliant issues will not
arise with respect to products furnished by third party manufacturers or
suppliers that may result in unforeseen costs or delays to the Company and
therefore have a material adverse effect on the Company. See
"Business--Information Services and Technology."
SUBSTANTIAL DILUTION
The assumed initial public offering price is substantially higher than the
net tangible book value per share of the outstanding Common Stock. As a result,
purchasers of Common Stock offered hereby will incur immediate, substantial
dilution in the amount of $10.28 per share based on the offering price. The
Company has granted in the past a substantial number of options to purchase
Common Stock to employees and directors as part of their compensation or
remuneration package, and the Company expects that it will continue to grant a
substantial number of options in the future. In addition, the Company adopted a
stock purchase plan that will allow employees an opportunity to purchase shares
below prevailing market value. The Company also may issue shares of Common Stock
in connection with strategic acquisitions or alliances, which could also result
in dilution to shareholders. See "Dilution."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be determined
by negotiations among the Company, the Selling Shareholder and the Underwriters.
There can be no assurance that an active trading market will develop for the
Common Stock or that the Common Stock will trade in the public market at or
above the initial public offering price. See "Underwriting."
The stock market has from time to time experienced extreme price and volume
volatility. In addition, the market price of the Company's Common Stock, like
that of the stock of other retail and apparel companies, may be highly volatile
due to certain risks inherent in the apparel industry. Factors such as
quarter-to-quarter variations in the Company's net sales and earnings and
changes in financial estimates by equity research analysts or other events or
factors could cause the market price of the Common Stock to fluctuate
significantly. Further, due to the volatility of the stock market and the prices
of stocks of retail and apparel companies generally, the price of the Common
Stock could fluctuate for reasons unrelated to the operating performance of the
Company.
13
<PAGE>
ABSENCE OF DIVIDENDS
Following the completion of this offering, the Company intends to retain any
future earnings for use in its business and, therefore, does not anticipate
paying any cash dividends on Common Stock in the foreseeable future. Future
dividend policy will depend on the Company's earnings, capital requirements and
financial condition as well as any restrictions imposed by existing credit
agreements and other factors considered relevant by the Board of Directors. See
"Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. Upon completion of this offering, the Company will have outstanding an
aggregate of 23,889,997 shares of Common Stock (based upon the number of shares
outstanding as of March 31, 1998 and assuming no exercise of outstanding options
or of the Underwriters' over-allotment option). Of these shares, all of the
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), unless such shares are purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act
("Affiliates"). The remaining 21,389,997 shares of Common Stock held by the
existing shareholders are "restricted securities," as that term is defined in
Rule 144 under the Securities Act ("Restricted Shares"). Restricted Shares may
be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 promulgated under the Securities Act.
As a result of the provisions of Rule 144 and certain contractual restrictions,
no Restricted Shares will be eligible for immediate sale in the public market on
the date of this Prospectus or prior to the expiration of a lock-up period
pursuant to lock-up agreements or provisions under the 1997 Stock Option Plan
(collectively, the "Lock-Up Arrangements") 180 days after the date of this
Prospectus at which time all Restricted Shares will be eligible to be sold,
subject to certain volume and other limitations under Rule 144.
As of March 31, 1998, options to purchase 1,782,900 shares of Common Stock
were outstanding and exercisable, subject to certain vesting and repurchase
restrictions. The Company intends to file a registration statement on Form S-8
under the Securities Act within 90 days after the date of this Prospectus to
register 2,830,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Plan and 750,000 shares reserved for issuance under the
Company's 1998 Employee Stock Purchase Plan. See "Management--Stock Plans" and
"Shares Eligible for Future Sale."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,250,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $12.00 per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company, are
estimated to be approximately $13,250,000. The Company will not receive any
proceeds from the sale of shares by the Selling Shareholder.
The Company intends to use the net proceeds for capital expenditures for
new, expanded and relocated stores, improvements to its management information
systems and expansion or relocation of its corporate offices and distribution
center, with the remainder to be used for working capital and general corporate
purposes. Pending such uses, the net proceeds will be invested in
investment-grade, interest bearing securities. See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DIVIDEND POLICY
The Company currently intends to retain its earnings, if any, for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future. In addition, the Company's line of credit agreement prohibits the
payment of cash dividends without the lender's prior approval.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998 on an actual basis and on an as adjusted basis to give effect to the
sale and issuance of the 1,250,000 shares of Common Stock offered hereby by the
Company at an assumed initial public offering price of $12.00 per share and
receipt and application of the estimated net proceeds (after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company) to the Company therefrom. See "Use of Proceeds." This table
should be reviewed in conjunction with the Financial Statements and Notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------
ACTUAL AS ADJUSTED
------------- -------------
<S> <C> <C>
Current portion of long-term debt.................................................. $ 111,579 $ 111,579
------------- -------------
------------- -------------
Long-term debt (1)................................................................. $ 96,302 $ 96,302
Shareholders' equity:
Preferred stock-authorized 1,000,000 shares at $0.001 par value per share; no
shares issued and outstanding................................................... -- --
Common Stock-authorized 40,000,000 shares $0.001 par value; issued and
outstanding 22,639,997, actual; issued and outstanding 23,889,997, as adjusted
(2)............................................................................. 22,640 23,890
Additional paid-in capital....................................................... 5,190,610 18,439,360
Deferred Compensation............................................................ (2,197,488) (2,197,488)
Retained earnings................................................................ 25,345,888 25,345,888
------------- -------------
Total shareholders' equity..................................................... 28,361,650 41,611,650
------------- -------------
Total capitalization......................................................... $ 28,457,952 $ 41,707,952
------------- -------------
------------- -------------
</TABLE>
- ------------
(1) See Note 3 of Notes to Financial Statements.
(2) Excludes 1,782,900 shares issuable upon exercise of options outstanding at
March 31, 1998 at a weighted average exercise price of $2.29 per share. See
"Management--Stock Plans."
16
<PAGE>
DILUTION
As of March 31, 1998, the Company's net tangible book value was
approximately $27,808,000, or $1.23 per share of Common Stock, based on
22,639,997 shares of Common Stock outstanding. Net tangible book value per share
is equal to the Company's total tangible assets less its total liabilities,
divided by the total number of shares of Common Stock outstanding. After giving
effect to the sale by the Company of 1,250,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $12.00 per share, and
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company, the as adjusted net tangible
book value of the Company as of March 31, 1998 would have been approximately
$41,058,000, or $1.72 per share. This represents an immediate increase in net
tangible book value of $0.49 per share of Common Stock to existing shareholders
and an immediate dilution in net tangible book value of $10.28 per share to
investors purchasing shares of Common Stock in this offering. The following
table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share....................................... $ 12.00
Net tangible book value per share as of March 31, 1998.............................. $ 1.23
Increase in net tangible book value per share attributable to new investors......... 0.49
---------
Net tangible book value per share after offering...................................... 1.72
---------
Dilution per share to new investors................................................... $ 10.28
---------
---------
</TABLE>
The following table summarizes, as adjusted as of March 31, 1998, with
respect to existing shareholders and the new investors in this offering, a
comparison of the number of shares of Common Stock acquired from the Company,
the percentage ownership of such shares, the total cash consideration paid, the
percentage of total cash consideration paid and the average price per share.
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 22,639,997 94.8% $ 2,488,250 14.2% $ 0.11
New investors.................. 1,250,000 5.2 15,000,000 85.8 12.00
------------ ----- ------------- -----
23,889,997 100.0% $ 17,488,250 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
- ------------
(1) Sales by the Selling Shareholder in the offering will cause the number of
shares held by existing shareholders to be reduced to 21,389,997 shares, or
89.5% (21,014,997 shares, or 88.0%, if the Underwriters' over-allotment
option is exercised in full), of the total number of shares of Common Stock
to be outstanding after this offering, and will increase the number of
shares held by new investors to 2,500,000 shares, or 10.5% (2,875,000
shares, or 12.0%, if the Underwriters' over-allotment option is exercised in
full), of the total number of shares of Common Stock to be outstanding after
this offering. See "Principal and Selling Shareholder."
The calculation of net tangible book value and other computations above
assume no exercise of outstanding options. As of March 31, 1998, 1,782,900
shares of Common Stock were issuable upon exercise of outstanding stock options
that were immediately exercisable upon grant at a weighted average exercise
price of $2.29 per share. To the extent the outstanding options are exercised,
there will be further dilution to new investors. See "Management--Stock Plans"
and "Shares Eligible for Future Sale."
17
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following selected financial data of the Company is qualified by
reference to, and should be read in conjunction with, the Financial Statements
and Notes thereto and the other financial information appearing elsewhere in
this Prospectus. The following selected statements of operations data for the
years ended June 30, 1995, 1996 and 1997 and the nine months ended March 31,
1998 and the balance sheet data as of June 30, 1995, 1996 and 1997 and March 31,
1998 are derived from the financial statements of the Company, which have been
audited by Deloitte & Touche LLP, independent auditors, and, except for the
balance sheet data as of June 30, 1995, are included elsewhere in this
Prospectus. The statements of operations data for the years ended June 30, 1993
and 1994 and the balance sheet data as of June 30, 1993 and 1994 are derived
from the unaudited financial statements of the Company. The selected statement
of operations data for the nine-month period ended March 31, 1997 and the
balance sheet data as of March 31, 1997, have been derived from the unaudited
financial statements of the Company. In the opinion of management, all
adjustments, consisting of only normal recurring accruals, considered necessary
for a fair presentation have been made. These historical results are not
necessarily indicative of results to be expected in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales...................................... $ 18,077 $ 32,603 $ 65,411 $ 71,563 $ 95,086 $ 68,397 $ 108,072
Cost of sales, including buying and
occupancy.................................... 9,606 17,222 32,653 44,701 53,969 40,300 53,758
--------- --------- --------- --------- --------- --------- ---------
Gross profit................................... 8,471 15,381 32,758 26,862 41,117 28,097 54,314
Selling, general and administrative expenses... 7,745 13,015 23,138 26,364 32,649 22,562 33,559
--------- --------- --------- --------- --------- --------- ---------
Income from operations......................... 726 2,366 9,620 498 8,468 5,535 20,755
Interest and other expenses (income), net...... 59 128 87 472 209 128 (502)
--------- --------- --------- --------- --------- --------- ---------
Earnings before income taxes................... 667 2,238 9,533 26 8,259 5,407 21,257
Provision (benefit) for income taxes........... 263 912 4,050 (48) 3,110 2,036 8,715
--------- --------- --------- --------- --------- --------- ---------
Net earnings................................... $ 404 $ 1,326 $ 5,483 $ 74 $ 5,149 $ 3,371 $ 12,542
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic earnings per share (1)................... $ 0.02 $ 0.06 $ 0.24 $ 0.00 $ 0.23 $ 0.15 $ 0.55
Diluted earnings per share (1)................. $ 0.02 $ 0.06 $ 0.24 $ 0.00 $ 0.23 $ 0.15 $ 0.53
Basic weighted average shares outstanding
(1).......................................... 22,640 22,640 22,640 22,640 22,640 22,640 22,640
Diluted weighted average shares outstanding
(1).......................................... 22,640 22,640 22,640 22,640 22,651 22,640 23,705
SELECTED OPERATING DATA:
Number of stores:
Opened during period......................... 11 8 24 18 10 7 5
Closed during period......................... 0 0 0 (1) 0 0 (3)
Open at end of period........................ 24 32 56 73 83 80 85
Net sales per average store (2)................ $ 958 $ 1,155 $ 1,480 $ 1,065 $ 1,211 $ 884 $ 1,268
Comparable store sales increase (decrease)
(3).......................................... 18.7% 29.5% 35.4% (16.5)% 18.0% 11.3% 43.5%
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................. $ 487 $ 2,639 $ 2,722 $ 5,496 $ 8,275 $ 6,482 $ 20,201
Total assets.................................... 5,054 11,076 19,520 22,200 29,109 25,077 46,220
Long-term debt, including current portion....... 500 500 321 3,680 320 157 208
Shareholders' equity............................ 1,773 4,577 10,060 10,143 15,295 13,514 28,362
</TABLE>
- ------------
(1) See Notes 1, 9 and 12 of Notes to Financial Statements for the method used
to calculate earnings per share amounts.
(2) Based on the sum of average monthly sales per open store for the period.
(3) Based on net sales; stores are considered comparable beginning on the first
day of the first month following the first anniversary of their opening.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and elsewhere in this Prospectus. The following section is qualified in
its entirety by the more detailed information, including "Risk Factors," and the
Financial Statements and Notes thereto, appearing elsewhere in this Prospectus.
OVERVIEW
bebe designs, develops and produces a distinctive line of contemporary
women's apparel and accessories, which it markets under the bebe and bebe moda
brand names through its 85 specialty retail stores located in 21 states. The
Company's stores average approximately 2,700 square feet and are located
primarily in regional shopping malls, and in several cases, free-standing street
locations. bebe's broad product offering includes suits, tops, pants, skirts,
dresses, logo and other activewear, outerwear, and handbags and other
accessories. Much of the Company's merchandise is designed and developed
in-house and manufactured to its specifications. The balance is developed
primarily in conjunction with third party apparel manufacturers or, in some
cases, selected directly from these manufacturers' lines.
The Company's net sales have grown from $18.1 million in fiscal 1993 to
$95.1 million in fiscal 1997, representing a compounded average growth rate of
51.4%. After building a strong suiting business in the early 1990's, in fiscal
1995 the Company achieved $65.4 million in net sales with an operating margin of
14.7% and strong comparable store sales growth. However, the Company was
vulnerable because of its dependence on a narrow product line emphasizing
suiting in a limited selection of fabrics and because it had not developed an
adequate infrastructure to keep pace with the growth of its business. In fiscal
1996, the Company experienced a significant financial downturn due to, among
other things, a significant disruption in supply of the Company's key
fabrication, difficulty in obtaining a replacement fabrication, certain related
fashion misjudgments, failure to obtain product deliveries in a timely manner,
rapid expansion of the Company's store base, and lack of sufficient controls and
personnel to support such expanded activity.
In response to the difficulties encountered in fiscal 1996, bebe has
strengthened significantly its management team and has begun implementing
several strategic initiatives which management believes have contributed to its
recent strong performance and positioned it to support significant new store
growth over the next several years. These initiatives were directed to all
aspects of the Company's operations, particularly the merchandising, planning,
manufacturing and distribution functions. Primarily as a result of these
management team additions and strategic initiatives implemented beginning at the
end of fiscal 1996, the Company has experienced a significant improvement in
performance. In particular, the Company's net sales grew from $71.6 million in
fiscal 1996 to $95.1 million in fiscal 1997, an increase of 32.8%, due in part
to an increase in comparable store sales of 18.0%. In addition, the Company's
income from operations grew from 0.7% of net sales to 8.9% during the same
period. Furthermore, for the nine months ended March 31, 1998, the Company's net
sales reached $108.1 million, an increase of 58.0%, compared to the same
nine-month period in fiscal 1997, and its income from operations increased from
8.1% of net sales to 19.2%.
The Company's comparable store sales growth per quarter for the fiscal
quarter ended March 31, 1997 through the fiscal quarter ended March 31, 1998 was
18.2%, 38.6%, 53.7%, 46.4% and 32.0%, respectively. The Company believes that
the rate of comparable store sales growth achieved in recent periods is not
sustainable and expects that such growth, if any, in the current and future
periods will be more moderate. Furthermore, during these recent periods of
relatively high comparable store sales growth, the Company has experienced
favorable merchandise margins due to strong sell-through rates and attendant low
markdown rates. As comparable store sales growth moderates, the Company
anticipates a decline in merchandise margins and accordingly a reduction in
gross margins. In addition, the Company's selling, general and administrative
expenses have decreased as a percentage of
19
<PAGE>
net sales in recent periods due in part to the rapid growth in net sales.
However, the Company believes that such expenses will increase as a percentage
of net sales during the next several quarters as the Company makes planned
investments to its infrastructure and sales growth moderates.
The Company's fiscal year ends on June 30 of each calendar year.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of net
sales for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED
MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, including buying and occupancy........... 49.9 62.5 56.8 58.9 49.7
--------- --------- --------- --------- ---------
Gross profit............................................ 50.1 37.5 43.2 41.1 50.3
Selling, general and administrative expenses............ 35.4 36.8 34.3 33.0 31.1
--------- --------- --------- --------- ---------
Income from operations.................................. 14.7 0.7 8.9 8.1 19.2
Interest and other expenses (income), net............... 0.1 0.7 0.2 0.2 (0.5)
--------- --------- --------- --------- ---------
Earnings before income taxes............................ 14.6 -- 8.7 7.9 19.7
Provision (benefit) for income taxes.................... 6.2 (0.1) 3.3 3.0 8.1
--------- --------- --------- --------- ---------
Net earnings............................................ 8.4% 0.1% 5.4% 4.9% 11.6%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Comparable store sales increase (decrease).............. 35.4% (16.5%) 18.0% 11.3% 43.5%
Stores opened during the period......................... 24 18 10 7 5
Stores closed during the period......................... 0 (1) 0 0 (3)
Stores open at the end of the period.................... 56 73 83 80 85
</TABLE>
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
NET SALES. Net sales increased to $108.1 million during the nine-month
period ended March 31, 1998 from $68.4 million for the same nine-month period in
fiscal 1997, an increase of $39.7 million, or 58.0%. Of this increase, $29.5
million was attributable to the 43.5% increase in comparable store sales, and
$10.2 million was attributable to stores not included in the comparable store
sales base. The increase in comparable store sales was attributable to a broader
product line offering, strong consumer acceptance of the product line and
improvements in the operational aspects of the Company's business.
GROSS PROFIT. Gross profit, which includes the cost of merchandise, buying
and occupancy, increased to $54.3 million during the nine-month period ended
March 31, 1998 from $28.1 million for the same period in fiscal 1997, an
increase of $26.2 million, or 93.3%. As a percentage of net sales, gross profit
increased to 50.3% during the nine-month period ended March 31, 1998 from 41.1%
during the same nine-month period in fiscal 1997. The increase in gross profit
as a percentage of net sales resulted from higher initial markups and lower
markdowns associated with higher sell-through rates, as well as reduced
occupancy costs as a percentage of net sales resulting from higher average store
sales. The Company believes that the gross margins attained during this most
recent nine-month period are not sustainable and that gross margins will likely
be lower in the current and future periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, which primarily consist of non-occupancy store costs,
corporate overhead and advertising costs, increased to $33.6 million during the
nine-month period ended March 31, 1998 from $22.6 million for the same
nine-month period in fiscal 1997, an increase of $11.0 million, or 48.7%. As a
percentage of net sales, these expenses decreased to 31.1% during the nine-month
period ended March 31, 1998 from 33.0% during the same nine-month period in
fiscal 1997. This reduction as a percentage of net sales was largely a result of
economies of scale related to the net sales increases offset in part by an
increase in advertising expenses as a percentage of net sales.
20
<PAGE>
INTEREST AND OTHER EXPENSE (INCOME), NET. The Company generated $502,000 of
interest income (net of other expenses) during the nine-month period ended March
31, 1998 as compared to $128,000 of net interest and other expense for the same
nine-month period in fiscal 1997. The Company had no borrowings under its line
of credit during the nine months ended March 31, 1998 due to increases in
average cash balances arising from its improved operating results compared to
net borrowing in the same nine-month period in fiscal 1997.
PROVISION (BENEFIT) FOR INCOME TAXES. The effective tax rate for the
nine-month period ended March 31, 1998 was 41.0% as compared to 37.7% in the
same nine-month period in fiscal 1997. The higher effective tax rate for the
nine-month period ended March 31, 1998 was primarily attributable to a higher
applicable federal tax rate and greater profitability in high tax rate states.
See Note 6 of Notes to Financial Statements.
YEARS ENDED JUNE 30, 1997 AND 1996
NET SALES. Net sales increased to $95.1 million in fiscal 1997 from $71.6
million in fiscal 1996, an increase of $23.5 million, or 32.8%. Of this
increase, $12.7 million was attributable to an 18.0% increase in comparable
store sales, and $10.8 million was attributable to stores not included in the
comparable store sales base. The increase in comparable sales was attributable
to a broader product line offering, strong consumer acceptance of the product
line and improvements in the operational aspects of the business.
GROSS PROFIT. Gross profit increased to $41.1 million in fiscal 1997 from
$26.9 million in fiscal 1996, an increase of $14.2 million, or 52.8%. As a
percentage of net sales, gross profit increased to 43.2% in fiscal 1997 from
37.5% in fiscal 1996. The increase in gross profit as a percentage of net sales
resulted from higher initial markups and lower markdowns associated with higher
sell-through rates, as well as reduced occupancy costs as a percentage of net
sales resulting from higher average store sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $32.6 million in fiscal 1997 from $26.4
million in fiscal 1996, an increase of $6.2 million, or 23.5%. As a percentage
of net sales, these expenses decreased to 34.3% in fiscal 1997 from 36.8% in
fiscal 1996. This reduction as a percentage of net sales was largely due to
economies of scale related to the net sales increases offset in part by expenses
related to additions to the management team and an increase in advertising
expenses as a percentage of net sales.
INTEREST AND OTHER EXPENSE (INCOME), NET. Net interest and other expense
decreased to $209,000 in fiscal 1997 from $472,000 in fiscal 1996, a decrease of
$263,000 due to reduced borrowing needs as a result of net cash generated from
operations in fiscal 1997 as compared to fiscal 1996.
PROVISION (BENEFIT) FOR INCOME TAXES. The Company's effective tax rate was
37.7% for fiscal 1997 compared to a tax benefit for fiscal 1996. See Note 6 of
Notes to Financial Statements.
YEARS ENDED JUNE 30, 1996 AND 1995
NET SALES. Net sales increased to $71.6 million in fiscal 1996 from $65.4
million in fiscal 1995, an increase of $6.2 million, or 9.5%. Of this increase,
$16.7 million was attributable to stores not included in the comparable store
sales base. This increase was offset significantly by a 16.5% decline in
comparable store sales. The decline in comparable store sales was due to, among
other things, lower sell-through of the Company's merchandise related to
changing consumer trends, a significant disruption in supply of the Company's
key fabrication, difficulty in obtaining replacement fabrication of similar
appeal in desired colors in a timely manner, certain related fashion
misjudgments and failure to manage product deliveries in order to obtain
merchandise in a timely manner.
GROSS PROFIT. Gross profit decreased to $26.9 million in fiscal 1996 from
$32.8 million in fiscal 1995, a decrease of $5.9 million, or 18.0%. As a
percentage of net sales, gross profit decreased to 37.5% in fiscal 1996 from
50.1% in fiscal 1995. The decrease in gross profit as a percentage of net sales
primarily resulted from the decrease in comparable store sales that led to a
high level of markdowns. In addition, the Company experienced increased
occupancy costs as a percentage of net sales related to the decline in average
store sales combined with the significant growth of the Company's store base.
21
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $26.4 million in fiscal 1996 from $23.1
million in fiscal 1995, an increase of $3.3 million, or 14.3%. As a percentage
of net sales, these expenses increased to 36.8% in fiscal 1996 from 35.4% in
fiscal 1995. This increase as a percentage of net sales is primarily related to
the decline in average store sales.
INTEREST AND OTHER EXPENSE (INCOME), NET. Net interest and other expense
increased to $472,000 in fiscal 1996 from $87,000 in fiscal 1995, an increase of
$385,000 as a result of increased net borrowings required to fund operations.
PROVISION (BENEFIT) FOR INCOME TAXES. The Company realized a tax benefit in
fiscal 1996 as a result of minimal taxable earnings offset by certain tax
credits compared to an effective tax rate of 42.5% for fiscal 1995 associated
with greater taxable earnings in fiscal 1995. See Note 6 of Notes to Financial
Statements.
SEASONALITY OF BUSINESS AND QUARTERLY RESULTS
The Company's business varies with general seasonal trends that are
characteristic of the retail and apparel industries. As a result, the Company
generates a disproportionate amount of its annual net sales in the first half of
its fiscal year (which includes the fall and holiday selling seasons) compared
to the second half of its fiscal year. If for any reason the Company's sales
were below seasonal norms during the first half of its fiscal year, as they were
in fiscal 1996, the Company's annual operating results would be affected
adversely. Because of the seasonality of the Company's business, results for any
quarter are not necessarily indicative of results that may be achieved for a
full fiscal year.
The following table sets forth certain unaudited statements of operations
data for each of the five quarters ended March 31, 1998, as well as such data
expressed as a percentage of the Company's total net sales for the periods
indicated. This data has been derived from unaudited financial statements that,
in the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for fair presentation of such information when
read in conjunction with the Company's Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
-----------------------------------------------------------------------------
SEPT. 30,
MARCH 31, 1997 JUNE 30, 1997 1997 DEC. 31, 1997 MARCH 31, 1998
--------------- ------------- ------------- ------------- ---------------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales........................... $ 23,146 $ 26,689 $ 31,218 $ 43,558 $ 33,296
Gross profit........................ 9,228 13,020 15,653 22,413 16,248
Selling, general and administrative
expenses.......................... 7,742 10,086 9,382 13,183 10,994
Income from operations.............. 1,486 2,934 6,271 9,230 5,254
Earnings before income taxes........ 1,516 2,852 6,439 9,374 5,444
Net earnings........................ 945 1,778 3,797 5,523 3,222
Basic earnings per share............ $ 0.04 $ 0.08 $ 0.17 $ 0.24 $ 0.14
Diluted earnings per share.......... $ 0.04 $ 0.08 $ 0.16 $ 0.23 $ 0.13
AS A PERCENTAGE OF NET SALES:
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit........................ 39.9 48.8 50.1 51.5 48.8
Selling, general and administrative
expenses.......................... 33.4 37.8 30.1 30.3 33.0
Income from operations.............. 6.4 11.0 20.1 21.2 15.8
Earnings before income taxes........ 6.5 10.7 20.6 21.5 16.4
Net earnings........................ 4.1 6.7 12.2 12.7 9.7
OPERATING DATA:
Comparable store sales increase..... 18.2% 38.6% 53.7% 46.4% 32.0%
Stores open at end of period........ 80 83 83 85 85
</TABLE>
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 1998, and the preceding three years,
bebe has satisfied its cash requirements principally through cash flow from
operations, borrowings under its revolving lines of credit and term loans.
Primary uses of cash have been to purchase merchandise inventory, fund the
construction of new stores and to remodel and renovate stores.
The Company's working capital requirements vary widely throughout the year
and generally peak in the first and second fiscal quarters. At March 31, 1998,
the Company had approximately $22.7 million of cash and cash equivalents on
hand. In addition, the Company had a revolving line of credit, under which it
could borrow or issue letters of credit up to a combined total of $7.0 million.
As of March 31, 1998, there were no borrowings under the line of credit and
letters of credit outstanding totaled $697,000.
Net cash provided by operating activities in fiscal 1997 was $13.0 million,
while net cash used by operating activities was $2.2 million in fiscal 1996. In
fiscal 1995, net cash provided by operating activities was $8.9 million. The
increase in cash provided by operating activities in fiscal 1997 compared to
1996 was primarily the result of increases in income from operations. The
increase in cash used by operating activities in 1996 compared to 1995 was
primarily a result of reduced income from operations.
Net cash used by investing activities was $1.0 million, $1.5 million and
$6.9 million in fiscal 1997, 1996 and 1995, respectively. The primary use of
these funds was for the opening of new stores and, to a lesser degree, the
implementation of new computer systems within the stores and the corporate
office. In addition, in fiscal 1995, the Company incurred approximately $540,000
in tenant improvement costs in connection with the lease of new corporate
offices.
The Company expects to make substantial capital expenditures in connection
with the opening and expansion of stores, the implementation of new systems to
support store and corporate office functions and the expansion or relocation of
its corporate offices and distribution center. The Company estimates that
capital expenditures will be between $3.5 million and $4.5 million in fiscal
1998, of which approximately $1.5 million had been expended as of December 31,
1997, and will be between $9.0 million and $11.0 million in fiscal 1999. The
Company opened six new stores through May 15 of fiscal 1998 and expects to open
one additional store during the remainder of fiscal 1998. The Company also
expects to open approximately fifteen stores in each of fiscal 1999 and 2000,
the majority of which will be in existing markets. During fiscal 1997, new store
construction costs (before tenant allowances) averaged $304,000. The average
gross inventory investment was $108,000 while pre-opening costs, which are
expensed as incurred, averaged approximately $12,500 per store. The average
total cost to build new stores will vary in the future, depending on various
factors, including local construction expenses, changes in store format and
design and tenant improvement allowances.
Net cash used by financing activities was $4.6 million in fiscal 1997 while
net cash provided by financing activities was $4.3 million in fiscal 1996. In
fiscal 1995, net cash used by financing activities was $1.6 million. Net cash
used by financing activities in fiscal 1997 primarily related to the repayment
of the term note and revolving line of credit. In fiscal 1996, net cash provided
by financing activities was related to proceeds from the term note and drawdowns
under the revolving line of credit. Net cash used by financing activities in
fiscal 1995 related to the paydown of amounts outstanding under the revolving
line of credit and repayment of the long term note payable to the Company's then
sole shareholder.
The Company believes that its cash on hand, together with its cash flow from
operations and the net proceeds to the Company from this offering, will be
sufficient to meet its capital and operating requirements through fiscal 1999.
The Company's future capital requirements, however, will depend on numerous
factors, including without limitation, the size and number of new and expanded
stores, investment costs for management information systems, potential
acquisitions and/or joint ventures, and future results of operations.
23
<PAGE>
YEAR 2000 COMPLIANCE
The Company has created a Year 2000 Task Force, which is implementing a
6-phase plan with the objective of ensuring that its management information
systems will record, store, process, calculate and present calendar dates
falling on or after (and if applicable, spans of time including) January 1, 2000
in the same manner, and with the same functionality as it has in years prior to
2000. The costs associated with the implementation of this 6-phase plan are
expected to be approximately $400,000 to $600,000 during fiscal 1998 and 1999.
However, there can be no assurance that this 6-phase plan will be successful or
that the estimated costs associated with its implementation will not materially
exceed current estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, REPORTING
COMPREHENSIVE INCOME, and SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 130 requires that an enterprise
report, by major components and as a single total, the change in its net assets
during the period from nonowner sources; and SFAS No. 131 establishes annual and
interim reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
Adoption of these statements will not have a material impact on the Company's
financial position, results of operations or cash flows, and any effect will be
limited to the form and content of its disclosures. Both statements are
effective for fiscal years beginning after December 15, 1997, with earlier
application permitted.
INFLATION
The Company does not believe that inflation has had a material effect on
results of operations for the past three fiscal years. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
24
<PAGE>
BUSINESS
The following discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors" and elsewhere in this Prospectus. The following section is
qualified in its entirety by the more detailed information, including "Risk
Factors," and the Financial Statements and Notes thereto, appearing elsewhere in
this Prospectus.
COMPANY OVERVIEW
bebe designs, develops and produces a distinctive line of contemporary
women's apparel and accessories, which it markets under the bebe and bebe moda
brand names exclusively through its 85 specialty retail stores located in 21
states. While bebe attracts a broad audience, the Company's target customers are
18 to 35 year-old women who seek current fashion trends interpreted to suit
their lifestyle needs. The "bebe look," with an unmistakable hint of sensuality,
appeals to a hip, sophisticated, body-conscious woman who takes pride in her
appearance. The bebe customer is a discriminating consumer who demands value in
the form of quality at a competitive price. bebe's broad product offering
includes suits, tops, pants, skirts, dresses, logo and other activewear,
outerwear, and handbags and other accessories. Much of the Company's merchandise
is designed and developed in-house and manufactured to its specifications. The
balance is developed primarily in conjunction with third party apparel
manufacturers or, in some cases, selected directly from these manufacturers'
lines.
Founded by Manny Mashouf, the Company's current Chairman, President and
Chief Executive Officer, bebe opened its first store in San Francisco,
California in 1976 and grew to 73 stores by the end of fiscal 1996. Since the
end of fiscal 1996, bebe has significantly strengthened its management team and
has begun implementing several strategic initiatives which management believes
have contributed to its recent strong performance and positioned it to support
significant new store growth over the next several years. These initiatives were
directed to all aspects of the Company's operations and in particular the
merchandising, planning, manufacturing and distribution functions. The Company's
merchandising initiatives focused primarily on expansion of its product line to
include a broader array of tops, pants, dresses, accessories and logo items.
While the Company's traditional bebe product offering spoke to the "nine to
five" needs of a young professional woman, the expanded product line provides
head-to-toe lifestyle dressing at a competitive price that easily adapts from
day into evening. Additionally, the logo portion of the product line, which
highlights the bebe logo on a variety of active and casual styles, enhances
brand awareness while providing younger, "aspirational" customers an entry to
the bebe product line at lower price points. The strategic initiatives relating
to the planning, manufacturing and distribution functions primarily involve the
implementation of more sophisticated procedures and a more disciplined approach
to the operational aspects of the business.
bebe reinforces its brand with a distinctive lifestyle image advertising
campaign, using prominent fashion photographers. The Company believes that its
emphasis on non-product specific lifestyle advertising promotes brand awareness
and attracts customers who are intrigued by the playfully sensual and evocative
imagery. The images are communicated to consumers through a variety of vehicles
including fashion magazines, bus shelters, in-store displays and customer
mailings. The Company further enhances the bebe brand image by designing its
stores to create an upscale, inviting, boutique environment.
25
<PAGE>
OPERATING STRATEGY
While the market for women's apparel is extremely large, the Company
believes that the distinctive, contemporary, bebe point-of-view addresses an
underserved market segment and presents the Company with opportunities for
future growth. The Company's objective is to become a global brand, offering
quality merchandise that enhances the spirit and playful sensuality of the
contemporary woman. The principal elements of the Company's operating strategy
to achieve this objective are as follows:
- PROVIDE DISTINCTIVE FASHION THROUGHOUT A BROAD PRODUCT LINE. bebe
merchandisers take their fashion inspiration from throughout the world,
interpreting contemporary ideas for silhouettes, fabrications and colors
into products and styles to meet the everyday lifestyle needs of the bebe
customer. While many of the Company's styles and products are represented
season after season with variations in color, fabric or trim, its
merchandisers are committed to bringing newness into the merchandise mix
in response to emerging trends. bebe's product lines are carefully planned
to represent a broad array of sleek, fashionable goods, with particular
emphasis on career wear, related separates and day-into-evening styles.
The bebe product line is further supported by a broad selection of
accessories that help bebe customers create a distinctive ensemble, while
logo-embellished items provide an entry point for younger, aspirational
customers.
- VERTICALLY INTEGRATE DESIGN, PRODUCTION, MERCHANDISING AND RETAIL
FUNCTIONS. The Company believes that its vertical integration of
processes from design to market coupled with its financial discipline
enable it to produce distinctive quality merchandise of exceptional value.
Once a line is conceived by the merchandise team, bebe maintains
flexibility in its sourcing by subcontracting production of its own
designs, developing exclusive products in conjunction with third party
apparel manufacturers, or selecting merchandise directly from these
manufacturers' lines. This approach also enables the Company to respond
quickly to changing fashion trends, while reducing its risk of excess
inventory.
- MANAGE MERCHANDISE MIX. The Company believes that a disciplined approach
to merchandising and a proactive inventory management program is critical
to its success. By actively monitoring sell-through rates and managing the
mix of categories and products in its stores, the Company believes it is
able to respond to emerging trends in a timely manner; minimize its
dependence on any particular category, style or fabrication; and preserve
a balanced, coordinated presentation of merchandise within each store.
- CONTROL DISTRIBUTION OF MERCHANDISE. bebe believes that its brand image
is greatly enhanced by distributing its products exclusively through bebe
stores. This controlled distribution strategy enables the Company to
display the full assortment of its products, control the pricing, visual
presentation and flow of goods, test new products and reinforce the
brand's identity in the eyes of its customers.
- ENHANCE BRAND IMAGE. Through an edgy, high-impact, visual advertising
campaign utilizing print, outdoor, in-store and direct mail communication
vehicles, the Company attracts customers who are intrigued by the
playfully sensual and evocative imagery of the bebe lifestyle. The Company
also offers a line of merchandise branded with the distinctive bebe logo
to increase brand awareness. Within its stores, the Company seeks to
create an upscale, inviting, boutique environment that further enhances
the bebe brand and builds customer loyalty and demand for bebe
merchandise. Furthermore, the Company trains bebe sales associates to be
responsive and knowledgeable and encourages them to reflect the bebe
image.
GROWTH STRATEGY
bebe's objective is to grow its operations in a controlled manner, primarily
through the opening of new stores. After intentionally slowing its store
expansion in fiscal 1997 and 1998 while implementing strategic initiatives begun
in fiscal 1996, the Company believes it is now positioned to accelerate its
store opening program. With seven stores planned for opening in fiscal 1998, six
of which have been opened to date, the Company currently plans to open
approximately 15 stores in each of fiscal 1999 and 2000, the majority of which
will be in existing markets. In addition to its domestic expansion, the Company
is considering international expansion primarily through licensing arrangements
and has entered into a license agreement with a company in Mexico. Additionally,
the Company continually reviews its store base and has identified four
underperforming stores that it is considering closing prior to the end of fiscal
1999.
26
<PAGE>
In addition, the Company plans to grow through product line extensions,
introduction of new product categories, such as intimate apparel, and
incremental operational improvements. The Company has recently hired a Vice
President of Licensing to explore opportunities for licensing the bebe name for
the development of product line extensions or new product categories that may
include eyewear, footwear and swimwear.
To support the introduction of new product categories in recent years as
well as to handle higher sales volumes, the Company has developed a store
prototype that is larger than the average of 2,700 square feet for the Company's
existing stores. The Company's new store prototype is approximately 3,000 to
5,000 square feet, although in certain selected markets the Company may open
larger stores. As opportunities arise, the Company also may expand certain
existing stores.
MERCHANDISING
The Company's merchandising strategy is to provide current, timely fashions
in a broad array of categories to suit the lifestyle needs of its customers. All
of the Company's merchandise is marketed under the bebe or bebe moda brand
names. Much of this merchandise is designed and developed in-house and
manufactured to the Company's specifications. The balance is developed primarily
in conjunction with third party apparel manufacturers or, in some cases,
selected directly from these manufacturers' lines.
PRODUCT CATEGORIES. After building a strong suiting business in the early
1990's, the Company diversified its product line in response to a decrease in
demand for its suiting in fiscal 1996. The Company significantly increased the
breadth of its product offerings by expanding categories such as related
separates, dresses, leather, logo and accessories and began to plan and monitor
its business by product classifications during fiscal 1997 and 1998. As volume
has increased in these expanded categories, the Company's dependence on suiting
has declined. While each category's contribution as a percentage of total net
sales varies seasonally, each of the product classifications is represented
throughout the year.
bebe regularly evaluates new categories that may be appropriate for
introduction and currently plans to introduce an intimate apparel product line
in the fall of 1998. Additionally, the Company believes opportunities exist for
other new product categories such as eyewear, swimwear and footwear, although
these categories are not currently under development.
PRODUCT DEVELOPMENT. The Company takes a disciplined approach to the
product development process. The goal of this approach is to allow its merchants
to gain as much information as possible concerning product sell-through and
current fashion trends before making fabric or product purchase commitments. The
process is controlled by a detailed product development calendar which
highlights key color selection, fabric order, pattern development and production
order deadlines. The deadlines are established to ensure an adequate flow of
inventory into the stores. While the product development calendar is established
on a seasonal basis, commitments are made semi-monthly based on current sales
and fashion trends thereby enhancing the Company's ability to react promptly to
customer demand. In collaboration with the merchandising teams, designers
continuously develop new styles to be presented at monthly product review and
selection meetings. Styles presented at these meetings incorporate variations on
existing styles in an effort to capitalize further on the more popular
silhouettes or, to a lesser extent, entirely new styles and fabrications that
respond to emerging trends or customer preferences.
In addition, the product development process is supported by a detailed
merchandising plan. This merchandising plan includes sales, inventory and
profitability targets for each product classification and is reconciled with the
Company's store sales plan, a compilation of individual store sales projections.
On a semi-monthly basis, the merchandising plan is updated to reflect current
sales and inventory trends and distributed throughout the merchandising
department. The updated merchandising plan is used to adjust production orders
as needed to meet inventory and sales targets. If bebe miscalculates consumer
demand for its products, it may be faced with significant excess inventory and
fabric for some products and missed opportunities for others. Weak sales and
resulting markdowns could cause the Company's profitability to be impaired.
27
<PAGE>
MARKETING
The Company in recent years initiated an extensive image advertising program
which addresses the lifestyles and aspirations of its target customers. Through
an edgy, high-impact, visual advertising campaign, the Company attracts
customers who are intrigued by the playfully sensual and evocative imagery. The
Company believes that its emphasis on non-product specific lifestyle advertising
promotes brand awareness and supports numerous product line expansion
opportunities. Since fiscal 1997, the Company has retained an outside
advertising agency to create and implement a lifestyle advertising campaign in
conjunction with the Company. This campaign, which emphasizes a forward-looking
view of fashion, is communicated to consumers through a variety of vehicles
including fashion magazines, bus shelters, in-store displays and customer
mailings. In addition, the Company maintains a public relations department to
communicate directly with fashion editors and supply them with a continuous flow
of product information. On occasion, the Company has co-sponsored promotional
events with fashion magazines, such as Elle, Glamour, Marie Claire and Vanity
Fair.
STORES
STORE LOCATIONS AND ENVIRONMENT. As of the date of this Prospectus, bebe
operated 85 stores in 21 states. The Company's stores average approximately
2,700 square feet and are primarily located in regional shopping malls, and in
several cases, free-standing street locations. The Company's stores are designed
to create a clean, upscale boutique environment, featuring hardwood or marble
floors and recessed lighting. Glass exteriors allow passersby to see easily into
the store. The open floor design allows customers to readily view the majority
of the merchandise on display while store fixtures allow for the efficient
display of garments and accessories. An average store has between 14 and 20
product display bays with a flexible modular design that can be transformed
easily to handle display racks, storage racks or shelving units.
Stores are provided specific merchandise display directions on a weekly or
bi-weekly basis from the corporate office based on currently available
merchandise receipts. bebe's in-store product presentation utilizes a variety of
different fixtures to highlight the product line's breadth and versatility.
Complete outfits are displayed throughout the store using garments from a
variety of product categories. By emphasizing outfits in this manner, the
Company allows the customer to see how different pieces can be combined to
create multiple ensembles.
28
<PAGE>
The following map and store list shows the number of bebe stores in each
state and the cities in which stores are located as of the date of this
Prospectus:
[MAP OF STORE LOCATIONS IN THE UNITED STATES]
<TABLE>
<S> <C>
ARIZONA (2)
- ---------------------------
Scottsdale
Tempe*
CALIFORNIA (28)
- ---------------------------
Camarillo*
Corte Madera
La Jolla
Los Angeles (11):
Beverly Hills (2)
Brea
Canoga Park
Glendale
Redondo Beach
Santa Anita
Santa Monica
Sherman Oaks
Thousand Oaks
West Los Angeles
Milpitas*
Montclair
Newport Beach
Ontario*
Sacramento
San Diego
San Francisco (3)
San Jose
San Mateo
Santa Ana
Stanford
Walnut Creek
FLORIDA (9)
- ---------------------------
Boca Raton
Brandon
Fort Lauderdale
Miami (2)
Palm Beach
Sanford
Sawgrass*
Tampa
GEORGIA (4)
- ---------------------------
Atlanta (4)
HAWAII (1)
- ---------------------------
Honolulu
ILLINOIS (4)
- ---------------------------
Chicago (4):
Michigan Avenue
Northbrook
Schaumburg
Skokie
INDIANA (1)
- ---------------------------
Indianapolis
MARYLAND (2)
- ---------------------------
Annapolis
Bethesda
- ---------------------------
MASSACHUSETTS (4)
- ---------------------------
Boston (2)
Burlington
Natick
MICHIGAN (2)
- ---------------------------
Novi
Troy
MINNESOTA (1)
- ---------------------------
Minnetonka
NEW JERSEY (3)
- ---------------------------
Hackensack
Menlo Park
Woodridge
NEW YORK (6)
- ---------------------------
Garden City
Nanuet
Manhattan (3)
White Plains
NEVADA (3)
- ---------------------------
Henderson
Las Vegas (2)
NORTH CAROLINA (1)
- ---------------------------
Charlotte
- ---------------------------
OHIO (1)
- ---------------------------
Cincinnati
PENNSYLVANIA (2)
- ---------------------------
King of Prussia
Willow Grove
TENNESSEE (1)
- ---------------------------
Knoxville
TEXAS (4)
- ---------------------------
Austin
Dallas
Grapevine*
Houston
VIRGINIA (2)
- ---------------------------
Arlington
McLean
WASHINGTON (3)
- ---------------------------
Auburn*
Bellevue
Seattle
WASHINGTON D.C. (1)
- ---------------------------
Washington D.C.
</TABLE>
- ------------
* Outlet store.
29
<PAGE>
The following table highlights the number of stores opened and closed in
each of the last seven fiscal years and the nine months ended March 31, 1998:
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------- ---------
1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of stores:
Open at beginning of period.................. 6 8 13 24 32 56 73 83
Opened..................................... 4 5 11 8 24 18 10 5
Closed..................................... (2) 0 0 0 0 (1) 0 (3)
---- ---- ---- ---- ---- ---- ----- --
Open at end of period........................ 8 13 24 32 56 73 83 85
---- ---- ---- ---- ---- ---- ----- --
---- ---- ---- ---- ---- ---- ----- --
</TABLE>
EXPANSION OPPORTUNITIES. In developing its store opening plan, the Company,
in conjunction with a real estate consulting firm, in fiscal 1997 developed a
profile of current customers and applied the profile to the largest 150
metropolitan areas in the United States. The Company currently operates bebe
stores in 37 of these top geographic market areas and has identified additional
geographic markets that it believes can support one or more bebe stores. In
addition, management believes that there is a significant opportunity to expand
the number of stores in most of the markets within which bebe stores are
currently located. The Company, in conjunction with its real estate consultant,
also has identified specific mall and street locations within each market to be
considered for new bebe store locations. In selecting a specific site, the
Company looks for high traffic locations primarily in regional shopping centers
and in free-standing street locations. Proposed sites are evaluated based on the
traffic pattern, co-tenancies, average sales per square foot achieved by
neighboring stores, lease economics and other factors considered important
within the specific location.
The Company opened five new stores during the nine months ended March 31,
1998, one store in May 1998 and expects to open one additional store during the
remainder of fiscal 1998. The Company also plans to open approximately 15 stores
in each of fiscal 1999 and 2000, the majority of which will be in existing
markets. The Company's new store prototype is approximately 3,000 to 5,000
square feet, although in certain selected markets the Company may open larger
stores. Additionally, in selected markets the Company may open high-profile
flagship stores that will be designed to enhance further the bebe image. The
Company currently plans to open approximately two such flagship stores ranging
in size from approximately 5,000 to 7,000 square feet in each of fiscal 1999 and
2000.
During fiscal 1997, the average new store size was approximately 3,300
square feet. New store construction costs (before tenant allowances) averaged
$304,000. The average gross inventory investment was $108,000 while pre-opening
costs, which are expensed as incurred, averaged approximately $12,500 per store.
bebe stores typically have achieved profitability at the store operating level
within the first full quarter of operation; however, there can be no assurance
that the Company's stores will do so in the future. Actual store growth and
future store profitability and rates of return will depend on a number of
factors which include, but are not limited to, individual store economics and
suitability of sites that become available. Because of their higher cost
structure, flagship stores are not expected to achieve operating margins
comparable to the Company's other stores.
In addition to opening new stores, the Company plans to expand or relocate
four existing stores to larger spaces within the same malls during calendar
1998. The Company believes that as awareness of bebe's brand name increases,
product lines expand and stores mature, additional expansion may be warranted.
The Company's ability to expand will depend on a number of factors,
including the availability of desirable locations, the negotiation of acceptable
leases and the Company's ability to manage expansion and to source adequate
inventory. There can be no assurance that the Company will be able to achieve
its planned expansion on a timely and profitable basis, if at all. Furthermore,
there can be no assurance that store openings in existing markets will not
result in reduced net sales volumes and profitability in existing stores in
those markets.
30
<PAGE>
OUTLET STORES. As of March 31, 1998, seven of the Company's 85 stores were
located in outlet malls throughout the United States. The Company originally
used these outlet stores to dispose of slow moving inventory in order to promote
a better merchandise presentation within the specialty stores. More recently,
the Company has rounded out the inventory of its outlet stores with casual logo
styles at full price and, to a lesser extent, garments specifically bought or
produced for the outlet stores.
During fiscal 1997, the average new outlet store size was approximately
3,000 square feet. New store construction costs (before tenant allowances)
averaged approximately $149,000, and the average inventory investment was
approximately $103,000. Of the seven stores planned to be opened in fiscal 1998,
two that have been opened to date were outlet stores. Of the 15 stores planned
to be opened in fiscal 1999, two are expected to be outlet stores.
STORE CLOSURES. In 1996, the Company initiated a program to monitor more
vigorously the financial performance of its stores and, from time to time, has
closed in the past and will close in the future, stores that it does not
consider to be viable. Many of the store leases contain early termination
options which allow the Company to close the stores in certain specified years
of the leases if certain minimum sales levels are not achieved. The Company
closed three stores during the nine months ended March 31, 1998 and one
additional store in April 1998. The Company has reviewed its existing store base
and has identified four underperforming stores that it is considering closing
prior to the end of fiscal 1999.
STORE OPERATIONS
Store operations are organized into five regions and seventeen districts.
Each region is managed by a regional manager, and each district is managed by a
district manager. Each regional manager is typically responsible for three to
four districts, and each district manager is typically responsible for three to
six stores. Each store is typically staffed with two to four managers in
addition to hourly sales associates.
The Company seeks to instill enthusiasm and dedication in its store
management personnel and sales associates through incentive programs and regular
communication with the stores. Sales associates receive commissions on sales
with a guaranteed minimum compensation. Store managers receive base compensation
plus incentive compensation based on sales. Regional and district managers
receive base compensation plus incentive compensation based on meeting
profitability benchmarks.
The Company has well-established store operating policies and procedures and
utilizes an in-store training regimen for all new store employees. Merchandise
presentation instructions, which include photographs of fixture presentations,
are provided to the stores on a weekly basis by the Visual Merchandising staff.
Detailed product descriptions also are provided to sales associates to enable
them to gain familiarity with bebe product offerings. The Company offers bebe
sales associates a discount on bebe merchandise to encourage them to wear the
Company's apparel and reflect the bebe image while on the selling floor. In
addition, the Company has developed a store management training program which
allows new district managers and certain field management personnel to receive
training at the corporate offices.
As part of its focus on better procedures and controls, the Company
established a Loss Prevention Department in fiscal 1997 to develop and implement
better programs for controlling losses. The initial results have been
encouraging. These programs include installing electronic article surveillance
systems in all stores, monitoring returns, voids, employee sales and deposits,
and educating store personnel on loss prevention.
SOURCING, QUALITY CONTROL AND DISTRIBUTION
All of the Company's merchandise is marketed under the bebe or bebe moda
brand names. Much of this merchandise is designed and developed in-house and
manufactured to the Company's specifications. The balance is developed primarily
in conjunction with third party apparel manufacturers or, in some cases,
selected directly from these manufacturers' lines. When contracting for the
production of merchandise, the Company uses a combination of facilities,
primarily located in California, and, to a lesser degree, foreign manufacturers,
to produce garments
31
<PAGE>
based on designs, patterns and detailed specifications produced by the Company.
bebe uses computer aided design (CAD) systems to develop its patterns and
production markers as part of its product development process. Sample garments
are fit tested prior to production to validate the accuracy of the patterns.
After being received at the Company's distribution facility, a percentage of
receipts are inspected and fit tested a second time. The Company recently
implemented a formalized quality control program which involves inspection of
merchandise and fabrics upon receipt at the Company's distribution center.
Garments that do not pass inspection are returned to the manufacturer for rework
or accepted at reduced prices for sale in the Company's outlet stores.
All of the Company's merchandise is received, inspected, processed,
warehoused and distributed through its distribution center that is adjacent to
its corporate offices. Details about each receipt are supplied to merchandise
planners who determine how the product should be distributed among the stores
based on current inventory levels, sales trends and specific product
characteristics. Advance shipping notices are electronically communicated to the
stores and any goods not shipped are stored for replenishment purposes.
Merchandise typically is shipped to the stores on a weekly basis using common
carriers; however, during peak selling periods shipments may be made twice or
even three times a week.
The Company does not have any long-term contracts with any manufacturer or
supplier and places all of its orders by purchase order. The failure to obtain
sufficient quantities of manufacturing capacity or raw materials would have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has received in the past, and may receive in
the future, shipments of products from manufacturers that fail to conform to the
Company's quality control standards. In such event, unless the Company is able
to obtain replacement products in a timely manner, the Company may lose sales
which could have an adverse effect on operating results.
COMPETITION
The Company believes it distinguishes itself from its competitors primarily
through its distinctive, contemporary point-of-view and product design, in
combination with exceptional quality and value to the consumer. However, the
retail and apparel industries are highly competitive and are characterized by
low barriers to entry, and the Company expects competition in its markets to
increase. The primary competitive factors in the Company's markets include brand
name recognition, product styling, product presentation, product pricing, store
ambiance, customer service and convenience. The Company competes with
traditional department stores, specialty store retailers, off-price retailers
and direct marketers for, among other things, raw materials, market share,
retail space, finished goods, sourcing and personnel. Many of these competitors
are larger and have substantially greater financial, distribution and marketing
resources than the Company. Any failure to compete would have a material adverse
effect on the Company's business, financial condition and results of operations.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
TRADEMARKS AND SERVICE MARKS. The Company believes that its trademarks and
other proprietary rights are important to its success and has registered "bebe"
and "bebe moda" in the United States and certain foreign jurisdictions. The
Company is seeking to register its trademarks in targeted international markets
which it believes represent large potential markets for the Company's products.
In some of these markets, local companies currently have registered competing
marks, and/or regulatory obstacles exist that may prevent the Company from
obtaining a trademark for the bebe name or related names. In such countries, the
Company may be unable to use the bebe name unless it purchases the right or
obtains a license to use the bebe name. There can be no assurance that the
Company will be able to register trademarks in such international markets,
purchase the right or obtain a license to use the bebe name on commercially
reasonable terms, if at all. Failure to obtain either trademark, ownership or
license rights would limit the Company's ability to expand into certain
international markets or enter such markets with the bebe name, and to
capitalize on the value of its brand.
32
<PAGE>
LICENSING. The Company strives to provide its customers with high quality
products and to maintain a consistent image in all of its advertising and
marketing programs. bebe currently is evaluating opportunities to expand its
product offerings and extend its geographic reach through licensing or joint
venture arrangements. Accordingly, although to date the Company has received
substantially no revenue from any licensing source, it may from time to time
selectively enter into licensing or joint venture agreements with third parties.
In entering into such licensing and joint venture agreements, the Company will
seek to preserve the integrity of its brand name by closely monitoring the
design and quality of the products sold by such licensees or joint venture
partners and by controlling the manner in which the Company's products are
advertised, marketed and distributed. In addition to distributing such new
products through bebe stores, the Company may elect to distribute these licensed
products with the bebe logo through other channels. The Company recently hired a
Vice President of Licensing to develop this program. See "Management."
The Company also believes that opportunities may exist to license the bebe
brand name internationally to licensees who will open bebe stores. As an initial
test, the Company has recently signed a licensing agreement with a Mexican
company to open and operate a retail bebe store in Mexico City. Under this
agreement, the Company provides the use of its name, store design and
advertising images, and the licensee purchases its inventory from the Company.
INFORMATION SERVICES AND TECHNOLOGY
The Company is committed to utilizing technology to enhance its competitive
position. To this end, the Company recently hired an experienced Vice President
of Information Technology to lead the Company's efforts in this area. bebe's
information systems provide integration of the store, merchandising,
distribution and financial systems. The core business systems, which consist of
both purchased and internally developed software, run on a UNIX platform and are
accessed over a Company-wide network providing corporate employees with access
to all key business applications. Daily sales and cash deposit information are
electronically collected from the stores' point-of-sale terminals nightly.
During this process, the Company also obtains information concerning inventory
receipts and transfers (primarily to the outlet stores) and sends to the stores
pricing, markdown and shipment notification data. In addition, the Company
collects customer names and addresses to update its customer database. The
merchandising staff evaluates the sales and inventory information collected from
the stores to make key merchandise planning decisions, including replenishment
and markdowns. These decisions enhance the Company's ability to optimize sales
while limiting markdowns and minimizing inventory risk by properly marking down
slow selling styles, reordering existing styles and effectively distributing new
inventory receipts to the stores.
In the past, the Company's investments in information systems have focused
on its core store, merchandise and financial accounting systems. Currently, the
Company's focus is on upgrading its capabilities and systems associated with its
production, merchandise allocation and distribution functions, which have not
kept pace with the Company's growth. The Company intends to make significant
investments to improve existing management information systems and implement new
systems in these areas and to implement them during fiscal 1999. Additionally,
the Company has created a Year 2000 Task Force, which is implementing a 6-phase
plan with the objective of ensuring that its management information systems will
be Year 2000 Compliant. There can be no assurance that the Company will be
successful with the implementation of these new systems or plans. Failure to
implement and integrate such systems or plans could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Risk Factors--Reliance on Management Information Systems" and "--Year 2000
Compliance."
33
<PAGE>
PROPERTIES
As of March 31, 1998, the Company's 85 stores, all of which are leased,
encompassed approximately 231,000 total square feet. The typical store lease is
for a 10-year term and requires the Company to pay a base rent and a percentage
rent if certain minimum sales levels are achieved. Many of the leases provide
the Company a lease termination option in certain specified years of the lease
if certain minimum sales levels are not achieved. In addition, leases for
locations typically require the Company to pay property taxes, utilities and
repairs and maintenance. In addition, leases for mall locations also may require
the Company to pay common area maintenance fees.
The Company's corporate headquarters and distribution center are located in
an approximately 70,000 square foot leased facility located at 380 Valley Drive
in Brisbane, California. The lease expires in August 2001. The Company is
currently seeking alternative or additional space for its administrative offices
and distribution center in order to accommodate its future needs and believes it
will be able to obtain such space on commercially reasonable terms.
EMPLOYEES
As of March 31, 1998, the Company had approximately 940 employees, of whom
approximately 210 were employed in general and administrative functions at the
corporate offices and distribution center. The remaining 730 employees were
employed in store operations. Of these remaining employees, approximately 274
were full-time employees and 456 were employed on a part-time basis. None of the
Company's employees is represented by a labor union, and the Company believes
its relationship with its employees is good.
LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations. As of the date of this Prospectus, the
Company is not engaged in any legal proceedings that are expected, individually
or in the aggregate, to have a material adverse effect on the Company's
business, financial condition or results of operations.
34
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL
The following table sets forth certain information with respect to the
executive officers, directors and other officers and key personnel of the
Company as of March 31, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Manny Mashouf (1)...................................... 59 Chairman, President and Chief Executive Officer
Greg Scott (1)......................................... 35 Vice President of Merchandising
Blair Lambert (1)...................................... 40 Chief Financial Officer
Neda Mashouf........................................... 35 Director and Design Director
Barbara Bass (2)....................................... 47 Director
Corrado Federico (2)................................... 57 Director
Philip Schlein (2)..................................... 63 Director
Julie Elliott.......................................... 34 Director of Stores
George Arvan........................................... 51 Vice President of Sourcing and Production
Karen Ioli............................................. 38 Vice President of Licensing
Tim Millen............................................. 38 Vice President of Information Technology
Bonnie Schultz......................................... 47 Executive Director of Human Resources
</TABLE>
- ------------
(1) Executive Officer.
(2) Member, Audit Committee and Compensation Committee.
MANNY MASHOUF founded the Company and has served as Chairman, Chief
Executive Officer and President of the Company since the Company's incorporation
in 1976. Mr. Mashouf is the husband of Neda Mashouf, a Director of the Company,
and the father of Paul Mashouf, the Secretary of the Company.
GREG SCOTT has served as the Company's senior merchant since January 1996.
From January 1994 to January 1996, Mr. Scott was a Senior Merchant at AnnTaylor,
Inc., a women's apparel retail company. From January 1993 to January 1994, Mr.
Scott served as a merchant at Henri Bendel, a women's apparel retailer. From
September 1985 to January 1993, Mr. Scott was employed by Macy's West, a
subsidiary of Federated Department Stores, Inc., most recently as a buyer.
BLAIR LAMBERT has served as Chief Financial Officer of the Company since
June 1996. From 1988 to 1996, Mr. Lambert was employed by Esprit de Corp, Inc.,
a wholesaler and retailer of junior and children's apparel, footwear and
accessories ("Esprit"), most recently as Corporate Vice President of Finance.
Mr. Lambert is a Certified Public Accountant.
NEDA MASHOUF has served as a Director of the Company since September 1984
and has been employed by the Company since 1984, most recently as Design
Director. Ms. Mashouf is the wife of Manny Mashouf, the Chairman, President and
Chief Executive Officer of the Company.
BARBARA BASS has served as a Director of the Company since February 1997.
Since 1993, Ms. Bass has served as the President of the Gerson Bakar Foundation.
From 1989 to 1992, Ms. Bass served as President and Chief Executive Officer of
the Emporium Weinstock Division of Carter Hawley Hale Stores, Inc., a department
store chain. Ms. Bass also serves on the Board of Directors of Starbucks
Corporation, DFS Group Limited and The Bombay Company, Inc.
CORRADO FEDERICO has served as a Director of the Company since November
1996. Since 1991, Mr. Federico has served as the President of Corado, Inc., a
land development firm. From 1986 to 1991, Mr. Federico held the position of
President and Chief Executive Officer of Esprit. Mr. Federico also serves on the
Board of Directors of Hot Topic, Inc.
35
<PAGE>
PHILIP SCHLEIN has served as a Director of the Company since December 1996.
Since April 1985, Mr. Schlein has been a general partner of U.S. Venture
Partners, a venture capital firm specializing in retail and consumer products
companies. From January 1974 to January 1985, Mr. Schlein served as President
and Chief Executive Officer of Macy's California, a division of R. H. Macy & Co,
Inc., a department store chain. Mr. Schlein also serves on the Board of
Directors of Ross Stores, Inc., ReSound Corporation, Quick Response Services and
Burnham Pacific Properties, Inc.
JULIE ELLIOTT has been employed with the Company since June 1989, most
recently as Director of Stores. From October 1986 to June 1989, Ms. Elliott was
employed by The Limited, Inc., a women's apparel retailer.
GEORGE ARVAN has served as the Vice President of Sourcing and Production of
the Company since September 1997. Prior to his employment with bebe, Mr. Arvan
founded New Planet Sourcing, an apparel sourcing company, and served as its
President from September 1996 to September 1997. During the period from 1991 to
1996, Mr. Arvan was the Chief Operating Officer of Berkeley Shirt Company, a
men's wholesale apparel company.
KAREN IOLI has served as Vice President of Licensing of the Company since
January 1998. From January 1996 to January 1998, Ms. Ioli served as Vice
President of Licensing for Mossimo, Inc., an apparel wholesale company. From
July 1992 to September 1995, Ms. Ioli was employed by Guess?, Inc., an apparel
retail and wholesale company, as Vice President of Licensing.
TIM MILLEN has served as Vice President of Information Technology of the
Company since November 1997. From July 1996 to November 1997, Mr. Millen served
as Vice President of Information Systems for AZ3 Inc. (d.b.a. BCBG), a women's
apparel retail and wholesale company. From August, 1994 to July 1996, Mr. Millen
served as Vice President of Management Information Systems for Francine Browner
Inc., an apparel wholesale company. From 1991 to 1994, Mr. Millen was an
independent information technology consultant, focusing on the retail and
wholesale apparel market.
BONNIE SCHULTZ has served as the Executive Director of Human Resources of
the Company since October 1997. From July 1993 to September 1997, Ms. Schultz
served as Director of Human Resources for Host Marriott Corporation, a hotel
company. From October 1982 to June 1993, Ms. Schultz was employed by Target
Stores, a subsidiary of Dayton Hudson Corporation, a retail company, most
recently as a Regional Human Resources Director.
BOARD OF DIRECTORS COMMITTEES
The Audit Committee, which consists of all of the non-employee directors,
oversees actions taken by the Company's independent auditors, recommends the
engagement of auditors and reviews the results and scope of the audit and other
services provided by the Company's independent auditors, reviews and evaluates
the Company's control functions and reviews the Company's investment policy.
The Compensation Committee, which consists of all of the non-employee
directors makes recommendations to the Board of Directors concerning salaries
and incentive compensation for employees and consultants of the Company. The
Compensation Committee also administers the Company's 1997 Stock Plan. Prior to
June 1997 the Board of Directors made recommendations regarding compensation for
employees and consultants of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee, which was established in June 1997, is comprised
of the three outside members of the Board of Directors, Ms. Bass, Mr. Federico
and Mr. Schlein.
DIRECTOR COMPENSATION
The Company's non-employee directors are paid a fee of $500 for each meeting
of the Board of Directors which they attend. The Company also reimburses all
directors for their expenses incurred in attending such
36
<PAGE>
meetings. In addition, certain directors have been granted options to purchase
Common Stock in the past, and options may be granted to directors of the Company
in the future. Specifically, each of Ms. Bass, Mr. Federico and Mr. Schlein have
received options to purchase 212,250 shares of the Company's Common Stock, at an
exercise price of $1.77 per share.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to (i) the Chief
Executive Officer and (ii) the Company's other most highly compensated executive
officers (collectively with the Chief Executive Officer, the "Named Executive
Officers") for services rendered in all capacities to the Company during the
fiscal year ended June 30, 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION --------------------
----------------------- NO. OF SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($)(1) UNDERLYING OPTIONS COMPENSATION ($)
- ------------------------------------------------ ---------- ----------- -------------------- -----------------
<S> <C> <C> <C> <C>
Manny Mashouf .................................. $ 449,921 $ 155,754 -- $ 1,572(2)
Chairman, President and
Chief Executive Officer
Greg Scott ..................................... 159,288 50,210 141,500 --
Vice President of
Merchandising
Blair Lambert .................................. 139,694 43,373 141,500 --
Chief Financial Officer
</TABLE>
- ------------
(1) Bonuses are based on Company net sales and profitability targets.
(2) Represents a matching contribution by the Company to Mr. Mashouf's 401(k)
contribution. See "--401(k) Plan."
The following table sets forth information regarding stock options granted
during the fiscal year ended June 30, 1997 to each of the Named Executives
Officers:
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF % OF TOTAL OPTIONS PRICE APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OPTION TERM(3)
UNDERLYING OPTIONS EMPLOYEES IN FISCAL PRICE PER EXPIRATION ----------------------
NAME GRANTED(1) 1997(2) SHARE DATE 5% 10%
- ----------------------------- ------------------ ------------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Manny Mashouf................ -- -- -- -- -- --
Greg Scott................... 141,500 8.9% $ 1.77 6/30/07 $ 157,510 $ 399,161
Blair Lambert................ 141,500 8.9 1.77 6/30/07 157,510 399,161
</TABLE>
- ------------
(1) These options were granted under the Company's 1997 Stock Plan. The options
granted are immediately exercisable, but are subject to repurchase in the
event that the optionee's employment with the Company ceases for any reason.
The Company's right of repurchase generally lapses over a four-year period,
as to 1/5th of the shares one year from the grant date, 1/60th of the shares
in each of the successive twelve months and 1/40th of the shares in each of
the successive 24 months with full lapse of the repurchase option occurring
on the fourth anniversary date. The options have a 10-year term, subject to
earlier termination in certain situations related to termination of
employment. See "--Stock Plans."
(2) Based on a total of 1,587,630 options granted to all employees, consultants
and directors during fiscal 1997.
(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
37
<PAGE>
The following table provides specified information concerning unexercised
options held as of June 30, 1997 by each of the Named Executive Officers. No
options to purchase Common Stock were exercised in the fiscal year ended June
30, 1997.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
VALUE OF UNEXERCISED IN-THE- MONEY
UNEXERCISED OPTIONS AT 6/30/97 OPTIONS AT 6/30/97 (1)
-------------------------------- ------------------------------------
NAME EXERCISABLE (2) UNEXERCISABLE EXERCISABLE (2) UNEXERCISABLE
- ------------------------------------------------------- ------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Manny Mashouf.......................................... -- -- -- --
Greg Scott............................................. 141,500 -- -- --
Blair Lambert.......................................... 141,500 -- -- --
</TABLE>
- ------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option at June 30, 1997 as determined by the
Company's Board of Directors ($1.77) and the exercise price of the Named
Executive Officer's option ($1.77).
(2) Under the 1997 Stock Plan, options granted are immediately exercisable, but
are subject to repurchase in the event that the optionee's employment with
the Company ceases for any reason. The Company's right of repurchase
generally lapses over a four-year period, as to 1/5th of the shares one year
from the grant date, 1/60th of the shares in each of the successive 12
months and 1/40th of the shares in each of the successive 24 months with
full lapse of the repurchase option occurring on the fourth anniversary
date.
STOCK PLANS
1997 STOCK PLAN
In June 1997, the Board of Directors adopted and the Company's then sole
shareholder approved the 1997 Stock Plan to recognize the contributions made to
the Company by its employees and certain consultants or advisors, to provide
these individuals with additional incentives to devote themselves to the
Company's future success and to improve the Company's ability to attract, retain
and motivate individuals upon whom the Company's sustained growth and financial
success depend. The 1997 Stock Plan is also intended as an additional incentive
to directors of the Company who are not employees of the Company to serve on the
Board of Directors and to devote themselves to the future success of the
Company. Awards under the 1997 Stock Plan may be made to all employees,
directors, consultants or advisors of the Company.
The 1997 Stock Plan is administered by the Compensation Committee. The
aggregate maximum number of shares of Common Stock available for award under the
1997 Stock Plan is 2,830,000 shares (subject to adjustment to reflect changes in
the Company's capitalization). Options granted under the 1997 Stock Plan may be
either incentive stock options ("ISO's"), non-qualified stock options, stock
purchase rights or stock awards. ISO's are intended to qualify as "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code.
Unless an option is specifically designated at the time of grant as an ISO,
options under the 1997 Stock Plan will be non-qualified options.
The exercise price of the options will be determined by the Board of
Directors or the Compensation Committee, although the exercise price of an ISO
will be at least 100% of the fair market value of a share of Common Stock on the
date it is granted, or at least 110% of the fair market value of a share of
Common Stock on the date the option is granted if the recipient owns, directly
or by attribution under Section 424(d) of the Internal Revenue Code, shares
possessing more than 10% of the total combined voting power of all classes of
stock of the Company. No awards can be made under the 1997 Stock Plan after June
26, 2007. The maximum term of an ISO granted under the 1997 Stock Plan shall not
exceed 10 years from the date of grant or five years from the date of grant if
the recipient on the date of grant owns, directly or by attribution under
Section 424(d) of the Internal Revenue Code, shares possessing more than 10% of
the total combined voting power of all classes of stock of the Company.
The options granted are immediately exercisable, but are subject to
repurchase in the event that the optionee's employment with the Company ceases
for any reason. The Company's right of repurchase generally lapses over a
38
<PAGE>
four-year period, as to 1/5th of the shares one year from the grant date, 1/60th
of the shares in each of the successive 12 months and 1/40th of the shares in
each of the successive 24 months with full lapse of the repurchase option
occurring on the fourth anniversary date. The options have a 10-year term,
subject to earlier termination in certain situations related to termination of
employment. Additionally, in the event of a Change of Control (as defined in the
1997 Stock Plan), options granted to the outside directors and Mr. Lambert shall
accelerate and become fully vested and the Company's right of repurchase shall
lapse.
As of March 31, 1998, the Company had granted options to purchase an
aggregate of 1,913,080 shares of Common Stock at exercise prices ranging from
$1.77 to $5.65 per share under the 1997 Stock Plan, of which 1,782,900 were
outstanding, exercisable and subject to repurchase by the Company under certain
circumstances as of such date.
1998 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors and approved by the shareholders of
the Company on April 7, 1998. A total of 750,000 shares of Common Stock has been
reserved for issuance under the Purchase Plan. The Purchase Plan, which is
intended to qualify under Section 423 of the Code, is administered by the Board
of Directors or by a committee appointed by the Board of Directors. Generally,
the Purchase Plan will allow eligible employees to purchase the Company's Common
Stock in an amount which may not exceed 10% of the employee's compensation. The
Purchase Plan will be implemented by an initial 24-month offering period, which
will be comprised of four, six-month purchase periods. Shares will be purchased
on the last day of each purchase period (a "Purchase Date") at a price equal to
85% of the lower of fair market value of the Company's Common Stock on the first
day of the offering period or the Purchase Date. The first offering period of
the Purchase Plan will begin on the effective date of this offering. The Board
of Directors (or committee thereof) may amend or terminate the Purchase Plan at
any time.
401(k) PLAN
The Company maintains a retirement and deferred saving plan for its
employees (the "401(k) Plan") that is intended to qualify as a tax-qualified
plan under the Internal Revenue Code of 1986, as amended. The 401(k) Plan
provides that each participant may contribute up to 15% of his or her pre-tax
gross compensation (up to a statutory limit, which was $10,000 in calendar year
1998). Under the 401(k) Plan, the Company may make discretionary matching
contributions. The Company's contributions to the 401(k) Plan in fiscal 1996 and
1997 were $35,947 and $32,688, respectively. A matching contribution made by the
Company vests at 20% per year commencing on the first anniversary of a
participant's date of employment with the Company. All amounts contributed by
participant's and earnings on such contributions are fully vested at all times.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company may indemnify its directors,
officers, employees and agents to the fullest extent permitted by law.
The Company has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Company's
Amended and Restated Articles of Incorporation (the "Amended and Restated
Articles"). These agreements, among other things, indemnify the Company's
directors and officers for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as a director or officer of the Company,
any subsidiary of the Company or any other company or enterprise to which the
person provides services at the request of the Company. The Company believes
that these provisions and agreements are necessary to attract and retain
qualified directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required. The Company is not aware of any threatened litigation or proceeding
that might result in a claim for such indemnification.
39
<PAGE>
CERTAIN TRANSACTIONS
In March 1995, the Company purchased from Manny Mashouf, the Chairman,
President and Chief Executive Officer of the Company, certain residential
property for $800,000. In February 1997, the Company sold the property to an
unaffiliated third party for $696,000, net of selling costs.
During the last three fiscal years, Mr. Mashouf has loaned to or borrowed
from the Company various amounts of cash ranging from loans to the Company of up
to $500,000 and advances from the Company of up to $150,000. As of March 31,
1998, there were no borrowings due to Mr. Mashouf from the Company or advances
owed to the Company by Mr. Mashouf.
40
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDER
The following table sets forth certain information regarding the beneficial
ownership of Common Stock, as of March 31, 1998 as adjusted to reflect the sale
of the shares of Common Stock offered hereby by (a) each person or entity known
by the Company to own beneficially more than 5% of the outstanding shares of
Common Stock, (b) each director of the Company, (c) each of the Named Executive
Officers and (d) all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1)
------------------------- NUMBER OF SHARES -------------------------
NAME OF BENEFICIAL OWNERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------------- ------------ ----------- ------------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Manny Mashouf (2).............................. 22,377,217 98.8% 1,250,000 21,127,217 88.4%
Barbara Bass (3)............................... 212,250 * -- 212,250 *
Corrado Federico (3)........................... 212,250 * -- 212,250 *
Neda Mashouf (4)............................... -- * -- -- *
Philip Schlein (3)............................. 212,250 * -- 212,250 *
Greg Scott (5)................................. 141,500 * -- 141,500 *
Blair Lambert (5).............................. 141,500 * -- 141,500 *
All directors and executive officers as a group
(7 persons) (6).............................. 23,296,967 98.9% 1,250,000 22,046,967 88.9%
</TABLE>
- ------------
* Represents less than 1% of the total outstanding.
(1) Number of shares beneficially owned and the percentage of shares
beneficially owned are based on (i) 22,639,997 shares outstanding as of
March 31, 1998 and (ii) 23,889,997 shares outstanding after this offering
assuming no exercise of the Underwriter's over-allotment option. If such
option is exercised in full, the number of shares outstanding after the
offering will be 23,889,997 and the number of shares owned by Mr. Mashouf
after the offering will be 20,752,217 (86.9%). Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission. All shares of Common Stock subject to options currently
exercisable or exercisable within 60 days after March 31, 1998 are deemed to
be outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the number of shares beneficially owned
and the percentage of ownership of such person, but are not deemed to be
outstanding and to be beneficially owned for the purpose of computing the
percentage of ownership of any other person. Except as indicated in the
footnotes to the table and subject to applicable community property laws,
based on information provided by the persons named in the table, such
persons have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) Mr. Mashouf's address is c/o bebe stores, inc., 380 Valley Drive, Brisbane,
California 94005. Excludes 262,780 shares held by trusts for Mr. Mashouf's
children, as to which shares Mr. Mashouf disclaims beneficial ownership. Mr.
Mashouf is the Chairman, President and Chief Executive Officer of the
Company.
(3) Represents 212,250 shares issuable upon exercise of options, all of which
are subject to vesting and the Company's right of repurchase under certain
circumstances within 60 days of March 31, 1998.
(4) Excludes 22,377,217 shares held by Mr. Mashouf, Ms. Mashouf's husband, and
262,780 shares held by trusts for Mr. Mashouf's children, as to which shares
Ms. Mashouf disclaims beneficial ownership.
(5) Represents 141,500 shares issuable upon exercise of options, all of which
are subject to vesting and the Company's right of repurchase under certain
circumstances within 60 days of March 31, 1998.
(6) Includes an aggregate of 919,750 shares issuable pursuant to options
currently exercisable held by the directors and officers, all of which are
subject to vesting and the Company's right of repurchase under certain
circumstances within 60 days of March 31, 1998. Excludes 262,780 shares held
by trusts for Mr. Mashouf's children, as to which shares Mr. and Ms. Mashouf
disclaim beneficial ownership.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares of
Common Stock, $0.001 par value per share, and 1,000,000 shares of Preferred
Stock, $0.001 par value per share. The following summary of the Company's
capital stock does not purport to be complete and is qualified in its entirety
by reference to the Amended and Restated Articles and Bylaws, copies of which
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
As of March 31, 1998, there were 22,639,997 shares of Common Stock held of
record by five shareholders. Immediately after the completion of this offering,
the Company estimates that there will be outstanding an aggregate of 23,889,997
shares of Common Stock. An additional 2,830,000 shares have been reserved for
issuance of options, of which 1,782,900 shares are subject to currently
outstanding and exercisable options, subject to certain vesting and repurchase
restrictions.
COMMON STOCK
VOTING RIGHTS. Under the Amended and Restated Articles and Bylaws, holders
of Common Stock will not have cumulative voting rights after the Company becomes
a "listed corporation" (as defined in Section 301.5 of the California
Corporations Code). Until such time, holders of Common Stock will be able to
cumulate votes for the election of directors. On all other matters, holders of
Common Stock are entitled to cast one vote for each share owned. The Company
anticipates that it will qualify as a listed corporation as of the first annual
meeting of shareholders following this offering, provided that the Company has
at least 800 holders of its equity securities as of the record date for such
annual meeting.
DIVIDEND, PREEMPTIVE AND LIQUIDATION RIGHTS. The holders of Common Stock
are entitled to participate in cash dividends, pro rata based on the number of
shares held, when, as and if declared by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." Such holders do not have any
preemptive or other rights to subscribe for additional shares. All holders of
Common Stock are entitled to share ratably in any assets for distribution to
shareholders upon the liquidation, dissolution or winding up of the Company.
There are no conversion, redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are fully paid and
nonassessable and the shares of Common Stock offered hereby, when issued and
paid for in accordance with the Underwriting Agreement, will be fully paid and
nonassessable.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock are available for future
issuance without shareholder approval except as required by law or applicable
requirements of the Nasdaq National Market ("Nasdaq"). For example, current
Nasdaq rules require approval by a company's shareholders if the number of
shares of Common Stock to be issued in a particular transaction or series of
related transactions equals or exceeds 20% of the number of shares of Common
Stock outstanding immediately prior to such issuance. These additional shares
may be utilized for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans.
The existence of authorized but unissued and unreserved Common Stock may
enable the Board of Directors to issue shares to persons friendly to current
management which could render more difficult or discourage an attempt to obtain
control of the Company by means of a proxy contest, tender offer, merger, or
otherwise, and thereby protect the continuity of the Company's management.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 1,000,000 shares of
Preferred Stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of these shares without any vote or action by the
shareholders. Accordingly, the rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of
42
<PAGE>
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company, thereby delaying, deferring or
preventing a change in control of the Company. Furthermore, such Preferred Stock
may have other rights, including economic rights, senior to the Common Stock,
and as a result, the issuance of such Preferred Stock could have a material
adverse effect on the market value of the Common Stock.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Securities
Transfer & Trust, Inc.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 23,889,997 shares of
Common Stock outstanding (based upon shares of Common Stock outstanding as of
March 31, 1998 and assuming no exercise of outstanding options, or the
Underwriters over-allotment option). Of these shares, the 1,250,000 shares being
sold by the Company and the 1,250,000 shares being sold by the Selling
Shareholder in this offering, plus any additional shares sold upon exercise of
the Underwriters' over-allotment option, will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares purchased by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act ("Affiliates"), may generally only be sold in
compliance with the limitations of Rule 144 described below. The remaining
21,389,997 shares of Common Stock (the "Restricted Shares") held by existing
shareholders upon completion of this offering are "restricted" securities within
the meaning of Rule 144 and may not be sold except in compliance with the
registration requirements of the Securities Act or an applicable exemption under
the Securities Act, including an exemption pursuant to Rule 144 or Rule 701.
LOCK-UP ARRANGEMENTS
All shareholders of the Company (who in aggregate hold 22,639,997 shares of
Common Stock) and all holders of options exercisable for Common Stock (who in
the aggregate have the right to purchase 1,782,900 shares of Common Stock), have
agreed, pursuant to certain lock-up agreements or certain provisions under the
1997 Stock Plan, that they will not, without the prior written consent of
BancAmerica Robertson Stephens, offer, sell contract to sell or otherwise
dispose of any shares of Common Stock beneficially owned by them (except for
shares sold in this offering) for a period of 180 days after the date of this
Prospectus. BancAmerica Robertson Stephens may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject to
lock-up agreements. See "Underwriting."
SALES OF RESTRICTED SHARES
Upon the expiration of the 180-day lock-up period, all of the 21,389,997
Restricted Shares will eligible for sale in the public market pursuant to Rule
144.
In general, under Rule 144, a person (or persons whose shares are
aggregated) including an Affiliate, who has beneficially owned shares for at
least one year (including the holding period of certain prior owners), will be
entitled to sell in "brokers' transactions" or to market makers, within any
three-month period commencing 90 days after the Company becomes subject to the
reporting requirements of Section 13 or 15 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), a number of shares that does not exceed
the greater of (i) one percent (1%) of the then-outstanding shares of Common
Stock (approximately 238,900 shares immediately after this offering based upon
shares of Common Stock outstanding as of March 31, 1998 and assuming no exercise
of outstanding options, or the Underwriters over-allotment option) or (ii) the
average weekly trading volume of the Common Stock during the four calendar weeks
immediately preceding such sale, subject, generally, to the filing of a Form 144
with the Commission with respect to such sales and certain other limitations and
restrictions relating to manner of sale and availability of public information.
In addition, a person (or person whose shares are aggregated), who is not deemed
to have been an Affiliate at any time during the 90 days immediately preceding
the sale and who has beneficially owned shares proposed to be sold for at least
two years, is entitled to sell such shares under Rule 144 (k) without regard to
limitations described above.
OPTIONS
In general, under Rule 701 under the Securities Act, any employee, director,
consultant or advisor of the Company who purchases shares from the Company in
connection with a compensatory stock or option plan or other written
compensatory agreement is entitled to resell such shares without having to
comply with the public information, holding period, volume limitation or notice
provisions of Rule 144, and Affiliates are eligible to resell such shares 90
days after the effective date of this offering in reliance on Rule 144, subject
to the provisions of the Lock-Up Arrangements.
44
<PAGE>
As of March 31, 1998, options to purchase 1,782,900 shares were outstanding
and exercisable under the 1997 Stock Plan. Upon expiration of the 180-day
lock-up period and subject to certain vesting and repurchase restrictions, all
the shares issued pursuant to the exercise of these stock options may be re-sold
pursuant to Rule 701. In addition, 1,047,100 shares of Common Stock are reserved
for issuance under the 1997 Stock Plan. The Company intends to file a
registration statement on Form S-8 under the Securities Act within 90 days after
the date of this Prospectus to register the shares issuable under the 1997 Stock
Plan. Such registration statement is expected to become effective upon filing of
such Form S-8. After the effective date of such registration statement and the
expiration of the lock-up period, shares of Common Stock issued under the 1997
Stock Plan will be immediately eligible for sale in the public market, subject
to certain vesting, repurchase and exercisability restrictions.
45
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson
Stephens and Bear, Stearns & Co. Inc. (the "Representatives"), have severally
agreed with the Company and the Selling Shareholder, subject to the terms and
conditions of the Underwriting Agreement, to purchase the number of shares of
Common Stock set forth opposite their respective names below. The Underwriters
are committed to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
BancAmerica Robertson Stephens..............................................
Bear, Stearns & Co. Inc.....................................................
----------------
Total..................................................................... 2,500,000
----------------
----------------
</TABLE>
The Representatives have advised the Company and the Selling Shareholder
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession of not in
excess of $ per share, of which $ may be reallowed to other dealers.
After the initial public offering, the offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such reduction
shall change the amount of proceeds to be received by the Company as set forth
on the cover page of this Prospectus.
The Selling Shareholder has granted to the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 375,000 additional shares of Common Stock at the same price per
share as the Company and the Selling Shareholder will receive for the 2,500,000
shares that the Underwriters have agreed to purchase. To the extent that the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
shares that the number of shares of Common Stock to be purchased by it shown in
the above table represents as a percentage of the 2,500,000 shares offered
hereby. If purchased, such additional shares will be sold by the Underwriters on
the same terms as those on which the 2,500,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholder against certain civil
liabilities, including liabilities under the Securities Act.
Each officer and director of the Company, and all shareholders of the
Company, have agreed with the Representatives for a period of 180 days after the
date of this Prospectus (the "Lock-Up Period"), subject to certain exceptions,
not to offer to sell, contract to sell, or otherwise, sell, dispose of, loan,
pledge or grant any rights with respect to any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock now owned or
hereafter acquired directly by such holders or with respect to which they have
or hereafter acquire the power of disposition, without the prior written consent
of BancAmerica Robertson Stephens. BancAmerica Robertson Stephens may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to the Lock-Up Arrangements. Pursuant to pre-existing
agreements, all shareholders and holders of options to purchase Common Stock
have agreed not to sell shares issuable upon the exercise of options for at
least 180 days after the effective date of the Registration Statement without
the prior written consent of the Company. In addition, the Company has agreed
that during the Lock-Up Period, the Company will not, without the prior written
consent of BancAmerica Robertson Stephens, subject to certain exceptions, issue,
sell, contract to sell, or otherwise dispose of, any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock or any securities
convertible into, exercisable for or exchangeable for shares of Common Stock
other than the Company's sale of shares in this offering, the issuance of Common
Stock upon the exercise of outstanding options and the Company's issuance of
options and stock under the 1997 Stock Plan.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock is
being determined through negotiations among the Company, the Selling Shareholder
and the Representatives. Among the factors considered in such negotiations are
prevailing market
46
<PAGE>
conditions, certain financial information of the Company, market valuations of
other companies that the Company and the Representatives believe to be
comparable to the Company, estimates of the business potential of the Company,
the present state of the Company's development and other factors deemed
relevant.
The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
The Representatives have advised the Company that certain persons
participating in this offering may engage in transactions, including stabilizing
bids, syndicate covering transactions or the imposition of penalty bids that may
have the effect of stabilizing or maintaining the market price of the Common
Stock at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the Common Stock on behalf of
the Underwriters for the purpose of fixing or maintaining the price of the
Common Stock. A "syndicate covering transaction" is the bid for or the purchase
of the Common Stock on behalf of the Underwriters to reduce a short position
incurred by the Underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the Representatives to reclaim the selling
concession otherwise accruing to an Underwriter or syndicate member in
connection with the offering if the Common Stock originally sold by such
Underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on Nasdaq or otherwise and, if
commenced, may be discontinued at any time.
From time to time, the Company purchases commercial paper from BancAmerica
Robertson Stephens. In addition, the Company has a line of credit with Bank of
America, National Trust and Savings Association ("Bank of America"), which is an
affiliate of BancAmerica Robertson Stephens. The Company also uses Bank of
America for its cash management services.
LEGAL MATTERS
The validity of the issuance of shares of Common Stock offered hereby will
be passed upon for the Company by Gray Cary Ware & Freidenrich LLP, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements as of June 30, 1996 and 1997 and March 31, 1998 and
for each of the three years ended June 30, 1997 and the nine-month period ended
March 31, 1998 included in this Prospectus and the related financial statement
schedule included elsewhere in the registration statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement, and are included
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
CHANGE IN ACCOUNTANTS
Effective June 1996, the Company's Board of Directors engaged Deloitte &
Touche LLP as its independent auditors to replace Wilson, McCall & Daoro, who
were dismissed as auditors of the Company effective February 1996. In connection
with the audit of the prior fiscal year ended June 30, 1995 (the first full year
audit of the Company's financial statements), there were no disagreements with
Wilson, McCall & Daoro on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope and procedures which, if not
resolved to the satisfaction of Wilson, McCall & Daoro, would have caused them
to make reference to the matter in their report. The report of Wilson, McCall &
Daoro on the financial statements of the Company for the year ended June 30,
1995 did not contain an adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope, or accounting principle.
The decision to change accountants was approved by the Board of Directors.
47
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and in the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement, exhibits and schedules. Statements contained in
this Prospectus regarding the contents of any contract or any other document are
summaries and, in each such instance, reference is hereby made to the copy of
such contracts and other documents filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement, and the exhibits and schedules thereto,
may be inspected without charge at the public reference facilities maintained by
the Commission at 450 Fifth Street N.W., Judiciary Plaza, Washington, D.C.,
20549, and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor: New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of all or any
part thereof may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington, DC 20549 at the
prescribed rates. Also, the Commission maintains a Website that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Website is http://www.sec.gov.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Independent Auditors' Report................................................................................ F-2
Balance Sheets.............................................................................................. F-3
Statements of Operations.................................................................................... F-4
Statements of Shareholders' Equity.......................................................................... F-5
Statements of Cash Flows.................................................................................... F-6
Notes to Financial Statements............................................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
bebe stores, inc.
We have audited the accompanying balance sheets of bebe stores, inc. (dba
bebe) as of June 30, 1996 and 1997 and March 31, 1998 and the related statements
of operations, shareholders' equity, and cash flows for the years ended June 30,
1995, 1996 and 1997 and the nine-month period ended March 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of bebe stores, inc. as of June 30, 1996 and
1997 and March 31, 1998, and the results of its operations and its cash flows
for the years ended June 30, 1995, 1996 and 1997 and the nine-month period ended
March 31, 1998 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
San Francisco, California
May 6, 1998
F-2
<PAGE>
BEBE STORES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF MARCH 31,
-------------------------- ---------------
1996 1997 1998
------------ ------------ ---------------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and equivalents.............................................. $ 1,760,612 $ 9,191,919 $ 22,741,554
Marketable securities............................................. 78,262 80,390
Receivables:
Income tax refund............................................... 1,721,648 17,378
Construction allowance.......................................... 404,815 296,656 123,366
Other (net of allowance of $13,500, $76,668 and $46,851)........ 48,557 40,201 195,107
Inventories, net.................................................. 8,310,729 9,461,698 11,016,322
Deferred income taxes............................................. 204,857 451,217 1,265,765
Prepaid and other................................................. 112,011 86,901 276,127
------------ ------------ ---------------
Total current assets.......................................... 12,641,491 19,626,360 35,618,241
Equipment and improvements, net..................................... 7,890,433 7,539,461 8,067,981
Assets held for sale................................................ 693,712
Deferred income taxes............................................... 231,680 1,131,625 1,792,206
Other assets........................................................ 742,455 811,848 741,601
------------ ------------ ---------------
Total other assets............................................ 1,667,847 1,943,473 2,533,807
------------ ------------ ---------------
Total assets........................................................ $ 22,199,771 $ 29,109,294 $ 46,220,029
------------ ------------ ---------------
------------ ------------ ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable.................................................. $ 3,211,460 $ 5,064,629 $ 6,873,547
Accrued liabilities............................................... 1,995,184 5,604,430 7,373,817
Revolving line of credit.......................................... 969,287
Current portion of long-term debt................................. 845,950 151,746 111,579
Income taxes payable.............................................. 530,354 1,058,428
Note due to shareholder........................................... 123,685
------------ ------------ ---------------
Total current liabilities..................................... 7,145,566 11,351,159 15,417,371
Long-term debt...................................................... 2,710,053 168,099 96,302
Deferred rent....................................................... 2,201,595 2,295,453 2,344,706
------------ ------------ ---------------
Total liabilities................................................... 12,057,214 13,814,711 17,858,379
Commitments and contingencies
Shareholders' equity:
Preferred stock-authorized 1,000,000 shares at $0.001 par value
per share; no shares issued and outstanding
Common stock-authorized 40,000,000 shares at $0.001 par value per
share; issued and outstanding 22,639,997 shares.................. 22,640 22,640 22,640
Additional paid-in capital........................................ 2,465,610 5,270,610 5,190,610
Deferred compensation............................................. (2,805,000) (2,197,488)
Retained earnings................................................. 7,654,307 12,806,333 25,345,888
------------ ------------ ---------------
Total shareholders' equity.................................... 10,142,557 15,294,583 28,361,650
------------ ------------ ---------------
Total liabilities and shareholders' equity.......................... $ 22,199,771 $ 29,109,294 $ 46,220,029
------------ ------------ ---------------
------------ ------------ ---------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
BEBE STORES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales..................... $ 65,410,936 $ 71,562,769 $ 95,086,125 $ 68,397,034 $108,072,493
Cost of sales, including
buying and occupancy........ 32,652,584 44,701,044 53,968,849 40,299,861 53,757,891
------------ ------------ ------------ ------------ ------------
Gross profit.................. 32,758,352 26,861,725 41,117,276 28,097,173 54,314,602
Selling, general and
administrative expenses..... 23,138,025 26,363,957 32,648,788 22,562,418 33,558,889
------------ ------------ ------------ ------------ ------------
Income from operations........ 9,620,327 497,768 8,468,488 5,534,755 20,755,713
Other expense (income):
Interest.................... 86,904 349,001 94,809 151,535 (628,555)
Other....................... 123,059 114,175 (24,206) 126,537
------------ ------------ ------------ ------------ ------------
Earnings before income
taxes....................... 9,533,423 25,708 8,259,504 5,407,426 21,257,731
Provision (benefit) for income
taxes....................... 4,050,516 (47,935) 3,109,985 2,036,125 8,715,670
------------ ------------ ------------ ------------ ------------
Net earnings.................. $ 5,482,907 $ 73,643 $ 5,149,519 $ 3,371,301 $ 12,542,061
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Basic earnings per share...... $ 0.24 $ 0.00 $ 0.23 $ 0.15 $ 0.55
Diluted earnings per share.... $ 0.24 $ 0.00 $ 0.23 $ 0.15 $ 0.53
Basic weighted average shares
outstanding................. 22,639,997 22,639,997 22,639,997 22,639,997 22,639,997
Diluted weighted average
shares outstanding.......... 22,639,997 22,639,997 22,650,871 22,639,997 23,705,312
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
BEBE STORES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL
NUMBER OF PAID-IN DEFERRED RETAINED
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS TOTAL
------------ --------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of July 1, 1994... 22,639,997 $ 22,640 $ 2,465,610 $ 2,088,940 $ 4,577,190
Net earnings................. 5,482,907 5,482,907
------------ --------- ------------ ------------- ------------- -------------
Balance as of June 30,
1995....................... 22,639,997 22,640 2,465,610 7,571,847 10,060,097
Net earnings................. 73,643 73,643
Unrealized gain on marketable
securities................. 8,817 8,817
------------ --------- ------------ ------------- ------------- -------------
Balance as of June 30,
1996....................... 22,639,997 22,640 2,465,610 7,654,307 10,142,557
Net earnings................. 5,149,519 5,149,519
Deferred compensation........ 2,805,000 $(2,805,000) 0
Unrealized gain on marketable
securities................. 2,507 2,507
------------ --------- ------------ ------------- ------------- -------------
Balance as of June 30,
1997....................... 22,639,997 22,640 5,270,610 (2,805,000) 12,806,333 15,294,583
Net earnings................. 12,542,061 12,542,061
Amortization of deferred
compensation............... (80,000) 607,512 527,512
Unrealized gain on marketable
securities................. (2,506) (2,506)
------------ --------- ------------ ------------- ------------- -------------
Balance as of March 31,
1998....................... 22,639,997 $ 22,640 $ 5,190,610 $(2,197,488) $ 25,345,888 $ 28,361,650
------------ --------- ------------ ------------- ------------- -------------
------------ --------- ------------ ------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
BEBE STORES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
---------------------------------- -----------------------
1995 1996 1997 1998
---------- ---------- ---------- 1997 ----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings..................................... $5,482,907 $ 73,643 $5,149,519 $3,371,301 $12,542,061
Adjustments to reconcile net earnings to cash
provided (used) by operating activities:
Non-cash compensation expense.................. 527,512
Depreciation and amortization.................. 1,098,537 1,302,318 1,802,538 1,311,794 1,584,957
Loss on disposal of property................... 78,887 58,927 64,567 705 209,982
Net (gain) loss on sales of securities......... 70,310 (12,369)
Valuation reserve on assets held for sale...... 80,000
Impairment loss................................ 271,543
Net loss from partnership...................... 83,444 79,171 74,910 14,755
Deferred income taxes.......................... (256,516) 98,781 (1,146,305) (665,525) (1,475,129)
Deferred rent.................................. 537,232 1,081,863 842,035 506,390 (112,531)
Changes in operating assets and liabilities:
Receivables.................................. (19,446) (1,678,035) 1,712,625 1,680,336 (138,067)
Inventories.................................. (1,910,047) (335,558) (1,150,969) (696,380) (1,554,623)
Other assets................................. (228,738) (98,145) (269,965) (97,704) (39,701)
Prepaid expenses............................. 106,650 (27,011) 25,110 (583,325) (189,227)
Accounts payable............................. 540,341 (104,413) 1,853,169 1,487,239 1,808,918
Accrued liabilities.......................... 446,080 890,958 3,283,514 1,812,091 1,973,242
Income taxes payable......................... 2,828,534 (3,600,000) 530,354 193,060 528,074
---------- ---------- ---------- ----------- ----------
Net cash provided (used) by operating
activities................................ 8,858,175 (2,189,870) 13,042,645 8,319,982 15,680,223
Cash flows from investing activities:
Purchase of equipment and improvements........... (6,418,526) (1,608,078) (1,716,637) (1,299,517) (2,098,075)
Proceeds from sales of equipment................. 22,288 1,029
Sale (purchase) of rental real estate............ (589,430) 693,007 693,007
Purchase of marketable securities................ (291,965) (253,915) (379)
Proceeds from sale of marketable securities...... 390,384 390,967 121 77,883
---------- ---------- ---------- ----------- ----------
Net cash used by investing activities...... (6,909,537) (1,471,026) (1,001,721) (606,389) (2,019,163)
Cash flows from financing activities:
Borrowings from (repayments to) shareholder...... (660,002) 55,104 (123,685) (123,686) 539
Net proceeds from (repayments on) revolving line
of credit....................................... (937,995) 969,287 (969,287) (969,288)
Repayments on capital leases & other............. (168,945) (51,300) (111,964)
Proceeds from term loan.......................... 4,084,367
Repayment of term loan........................... (780,354) (3,347,700) (3,347,700)
---------- ---------- ---------- ----------- ----------
Net cash provided (used) by financing
activities................................ (1,597,997) 4,328,404 (4,609,617) (4,491,974) (111,425)
Net increase in cash............................... 350,641 667,508 7,431,307 3,221,619 13,549,635
Cash:
Beginning of year................................ 742,463 1,093,104 1,760,612 1,760,612 9,191,919
---------- ---------- ---------- ----------- ----------
End of year...................................... $1,093,104 $1,760,612 $9,191,919 $4,982,231 $22,741,554
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
Supplemental information:
Cash paid for interest........................... $ 86,905 $ 177,313 $ 216,617 $ 193,716 $ 17,193
---------- ---------- ---------- ----------- ----------
Cash paid for income taxes....................... $1,797,035 $5,123,567 $3,907,703 $3,215,610 $10,080,337
---------- ---------- ---------- ----------- ----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS--bebe stores, inc. (dba bebe), the "Company,"
designs, develops and produces a distinctive line of contemporary women's
apparel and accessories, which it markets under the bebe and bebe moda brand
names primarily through its 85 specialty retail stores.
STOCK SPLIT--The Company's Board of Directors authorized an eight
thousand-for-one split of its common stock in the form of a stock dividend for
shareholders of record at the close of business on June 26, 1997. Share and per
share amounts in the accompanying financial statements have been restated to
give effect to the stock split (See also Note 13).
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from those estimates.
CASH AND EQUIVALENTS represent cash and short-term, highly liquid
investments with original maturities of three months or less.
MARKETABLE SECURITIES (classified as available-for-sale securities) are
reported at fair value. Fair values are based on quoted market prices.
Unrealized gains and losses are excluded from income and are reported as an
increase or decrease in shareholders' equity.
INVENTORIES, net are stated at the lower of FIFO (first-in, first-out) cost
or market. Cost includes certain indirect purchasing, merchandise handling and
storage costs.
EQUIPMENT AND IMPROVEMENTS, NET are stated at cost. Depreciation on
equipment is computed using the double declining balance method for items
purchased prior to July 1, 1995 and the straight-line method is used for all
improvements as well as equipment purchased after July 1, 1995. Equipment and
improvements are depreciated over the estimated useful lives of the related
assets ranging from three to 12 years.
LEASING COMMISSIONS associated with negotiating new store leases are
capitalized in other assets and amortized over the lease term. Accumulated
amortization on leasing commissions at June 30, 1996 and 1997 and March 31, 1998
was $117,866, $176,571 and $230,516, respectively.
LONG-TERM INVESTMENT--The Company owns 48.35% of a limited partnership and
accounts for the investment using the equity method. Accordingly, the
investment, which is included in other assets, is carried at cost, adjusted for
the Company's percentage share of the partnership's cumulative net income or
loss.
DEFERRED RENT--Many of the Company's operating leases contain predetermined
fixed increases of the minimum rental rate during the initial lease term. For
these leases, the Company recognizes the related rental expense on a
straight-line basis and records the difference between the amount charged to
expense and the rent paid as deferred rent.
STORE PREOPENING COSTS--Costs associated with the opening or remodeling of
stores, such as preopening rent and payroll, are charged to expense as incurred.
ADVERTISING COSTS--Costs associated with advertising are charged to expense
when the advertising first takes place. Advertising costs were $1,624,000,
$1,560,000 and $2,861,162, respectively, during fiscal 1995, 1996 and 1997. For
the nine months ended March 31, 1997 and 1998, advertising expense was
$1,843,841 and $4,690,196, respectively.
F-7
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES are accounted for using an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences,
expected future events are considered other than changes in the tax law or
rates.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying values of cash
and equivalents, investments, receivables, accounts payable, and long-term debt
approximates their estimated fair values.
IMPAIRMENT OF LONG-LIVED ASSETS--The Company adopted Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF as of June 30, 1997. Whenever events
or changes in circumstances have indicated that the carrying amount of its
assets might not be recoverable, the Company, using its best estimates based on
reasonable and supportable assumptions and projections, has reviewed for
impairment the carrying value of long-lived assets. The Company has identified a
group of underperforming stores and anticipates the closure of some of these
locations in the future. Included in selling, general and administrative
expenses for fiscal 1997 is $271,543 related to the recognition of an impairment
loss. There were no expenses related to impairment loss for the nine-month
period ended March 31, 1998.
STOCK-BASED COMPENSATION--The Company accounts for stock-based awards to
employees using the intrinsic value-based method under Accounting Principles
Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. The
Company has adopted the disclosure provisions of SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION.
EARNINGS PER SHARE--In February 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, EARNINGS PER SHARE, which requires dual
presentation of basic earnings per share ("EPS") and diluted EPS on the face of
all statements of operations issued after December 15, 1997 for all entities
with complex capital structures. Basic EPS is computed as net earnings divided
by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur from common shares
issuable through stock options.
NEW ACCOUNTING PRONOUNCEMENTS--In June 1997, the FASB issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 31, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 130 requires that an enterprise
report, by major components and as a single total, the change in its net assets
during the period from nonowner sources; and SFAS No. 131 establishes annual and
interim reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
Adoption of these statements will not significantly impact the Company's
financial position, results of operations or cash flows and any effect will be
limited to the form and content of its disclosures. Both statements are
effective for fiscal years beginning after December 15, 1997.
INTERIM FINANCIAL STATEMENTS--The accompanying unaudited interim financial
statements, in the opinion of management, include all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
position as of March 31, 1997, and the interim results of operations and cash
flows for the nine months ended March 31, 1997. The results of operations for
the nine-month period ended March 31, 1997 are not necessarily indicative of the
results to be expected for the full year. The information in the notes to
financial statements which relates to the nine-month period ended March 31, 1997
is unaudited.
RECLASSIFICATIONS--Certain reclassifications have been made to the prior
year financial statements to conform with the financial statement presentation
as of and for the nine-month period ended March 31, 1998.
F-8
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVENTORIES
The Company's inventories consist of:
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30, MARCH 31,
-------------------------- ---------------
1996 1997 1998
------------ ------------ ---------------
<S> <C> <C> <C>
Raw materials.................................... $ 2,620,452 $ 2,785,382 $ 4,999,003
Merchandise available for sale................... 6,070,277 7,497,872 8,318,920
------------ ------------ ---------------
Total............................................ 8,690,729 10,283,254 13,317,923
Less: valuation allowance........................ (380,000) (821,556) (2,301,601)
------------ ------------ ---------------
Inventories, net................................. $ 8,310,729 $ 9,461,698 $ 11,016,322
------------ ------------ ---------------
------------ ------------ ---------------
</TABLE>
The increase in the valuation allowance at March 31, 1998 is primarily
related to the increase in fabric inventories not directly associated with
planned garment production orders.
3. CREDIT FACILITIES
Debt consists of the following:
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30, MARCH 31,
------------------------- ---------------
1996 1997 1998
------------ ----------- ---------------
<S> <C> <C> <C>
Term loan......................................... $ 3,347,700
Note due to shareholder........................... 123,685
Capital leases.................................... $ 157,495 $ 94,014
Note payable...................................... 208,303 162,350 113,867
------------ ----------- ---------------
Total............................................. 3,679,688 319,845 207,881
Less: current portion............................. (969,635) (151,746) (111,579)
------------ ----------- ---------------
Total long-term debt.............................. $ 2,710,053 $ 168,099 $ 96,302
------------ ----------- ---------------
------------ ----------- ---------------
</TABLE>
As of June 30, 1997 and March 31, 1998, the Company had a revolving line of
credit, with a facility for letters of credit, with interest at the bank's
reference rate (which was 8.5% as of June 30, 1997 and March 31, 1998) allowing
for up to $7 million in borrowings including outstanding letters of credit. As
of June 30, 1997 and March 31, 1998 there was $751,391 and $697,028,
respectively, outstanding in letters of credit. The line expired on April 1,
1998 and was replaced by a $5,000,000 revolving line of credit (See also Note
13).
As of June 30, 1997 and March 31, 1998 the line of credit was secured by
certain personal property of the Company, primarily inventories, receivables and
trademarks. This credit facility required the Company to comply with several
financial covenants, including but not limited to a minimum current ratio,
minimum tangible net worth, and maximum liabilities to tangible net worth. In
addition, under the line of credit, cash dividends could not be paid without the
prior consent of the lending institution. As of June 30, 1997 and March 31,
1998, the Company was in compliance with such covenants.
The Company purchased 48.35% of a housing partnership in fiscal 1994. The
note payable of $162,350 and $113,867 at June 30, 1997 and March 31, 1998 is the
remaining amount due on the purchase. The note will be paid off in increments
through fiscal year 2001.
F-9
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. CREDIT FACILITIES (CONTINUED)
Scheduled maturities of debt outstanding at March 31, 1998 are as follows:
<TABLE>
<S> <C>
Three months ended June 30, 1998.................................. $ 23,559
Fiscal year ending June 30,
1999.............................................................. 105,113
2000.............................................................. 65,606
2001.............................................................. 20,801
---------
Total minimum payments............................................ 215,079
Less: imputed interest............................................ (7,198)
---------
Present value of future minimum payments.......................... $ 207,881
---------
---------
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
AS OF MARCH
AS OF JUNE 30, 31,
-------------------------- ------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Employee compensation.............................. $ 1,060,244 $ 1,287,263 $1,987,550
Sales and use taxes................................ 370,214 546,120 800,078
Store credits and gift certificates................ 160,321 1,371,839 1,728,928
Lease termination costs............................ 1,687,327 1,355,223
Other.............................................. 404,405 711,881 1,502,038
------------ ------------ ------------
Total.............................................. $ 1,995,184 $ 5,604,430 $7,373,817
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Other accrued liabilities relate primarily to advertising, percentage rents,
employee benefits and certain store expenses.
5. OPERATING LEASES
The Company has operating leases for its retail store locations, corporate
headquarters, distribution center and certain office equipment. Store leases
typically provide for payment by the Company of operating expenses, real estate
taxes and additional rent based on a percentage of net sales if a specified net
sales target is exceeded. In addition, certain leases have escalation clauses
and provide for terms of renewal and/or early termination based on the net sales
volumes achieved.
Rent expense for the years ended June 30, 1995, 1996 and 1997 was
$7,397,035, $11,066,614 and $13,481,105, respectively, and $10,005,817 and
$11,531,658 for the nine-month periods ended March 31, 1997 (unaudited) and
1998, respectively. Rent expense includes percentage rent and other
lease-required expenses for the years ended June 30, 1995, 1996 and 1997 of
$2,511,224, $3,741,920 and $4,776,148, respectively, and $3,581,124 and
$4,455,467 for the nine-month periods ended March 31, 1997 (unaudited) and 1998,
respectively.
F-10
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. OPERATING LEASES (CONTINUED)
Future minimum lease payments under operating leases at March 31, 1998 are
as follows:
<TABLE>
<S> <C>
Fiscal year ending June 30:
1999............................. $ 9,553,604
2000............................. 9,625,479
2001............................. 9,451,577
2002............................. 8,903,306
2003............................. 8,474,740
Thereafter....................... 19,595,922
-----------
Total minimum lease payments....... $65,604,628
-----------
-----------
</TABLE>
6. INCOME TAXES
A summary of the provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH
FISCAL YEAR ENDED JUNE 30, 31,
---------------------------------- -------------------------
1995 1996 1997 1997 1998
---------- --------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal.......................... $3,287,130 $(213,716) $ 3,572,949 $ 2,023,221 $ 7,974,790
State............................ 1,019,902 67,000 683,341 678,431 2,215,962
---------- --------- ----------- ----------- -----------
4,307,032 (146,716) 4,256,290 2,701,652 10,190,752
Deferred:
Federal.......................... (256,516) 98,781 (847,313) (429,800) (1,087,547)
State............................ (298,992) (235,727) (387,535)
---------- --------- ----------- ----------- -----------
(256,516) 98,781 (1,146,305) (665,527) (1,475,082)
---------- --------- ----------- ----------- -----------
Provision (benefit)............ $4,050,516 $ (47,935) $ 3,109,985 $ 2,036,125 8,715,670
---------- --------- ----------- ----------- -----------
---------- --------- ----------- ----------- -----------
</TABLE>
Temporary differences arise primarily from certain accruals, including
California franchise taxes, which are not currently deductible for tax purposes,
and differences between financial and tax depreciation methods. Deferred income
taxes are recognized for tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax basis of existing assets
and liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-11
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
A reconciliation of the statutory federal income tax rate with the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE NINE MONTHS ENDED
30, MARCH 31,
----------------------- -------------------
1995 1996 1997 1997 1998
----- ------- ----- ----------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal statutory rate............. 35.0% 35.0% 35.0% 35.0% 35.0%
State rate, net of federal
benefit.......................... 6.3 18.8 5.5 4.8 5.6
Valuation adjustment............... 0.3 19.5 (1.2)
Benefit of graduated rate.......... (1.0) (1.0) (1.2)
Tax credits........................ (311.2) (1.0) (0.4)
Permanent items and other.......... 1.9 52.2 0.6 (2.1) 0.8
----- ------- ----- --- -----
Effective tax rate................. 42.5% (186.7)% 37.7% 37.7% 41.0%
----- ------- ----- --- -----
----- ------- ----- --- -----
</TABLE>
Significant components of the Company's deferred tax assets (liabilities)
are as follows:
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF MARCH 31,
------------------------- ------------------
1996 1997 1998
----------- ------------ ------------------
<S> <C> <C> <C>
Current:
Inventory reserve............................ $ 160,962 $ 357,133 $ 1,322,728
State taxes.................................. 101,055 (96,547)
Accrued vacation............................. 90,895 57,615 61,897
Uniform capitalization....................... (19,881) (90,145) (120,989)
Other accruals............................... 12,186 25,559 98,676
----------- ------------ ------------------
Total current.............................. 244,162 451,217 1,265,765
Noncurrent:
Basis difference in fixed assets............. 152,866 280,795 792,152
Store closure accrual........................ 709,930 552,797
Deferred rent................................ 147,153 140,900 195,211
Deferred compensation........................ 229,311
Other........................................ 22,735
----------- ------------ ------------------
Total noncurrent........................... 300,019 1,131,625 1,792,206
----------- ------------ ------------------
Valuation allowance.......................... (107,644)
----------- ------------ ------------------
Net deferred tax assets........................ $ 436,537 $ 1,582,842 $ 3,057,971
----------- ------------ ------------------
----------- ------------ ------------------
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company had
established a valuation allowance for 100% of the net state deferred asset at
June 30, 1996 due to the uncertainty of realizing future tax benefits from its
state net operating loss carryforwards (NOLs) and other deferred tax assets.
Since the benefits of the NOLs are now expected to be realized, the Company was
able to reverse the entire valuation allowance in fiscal 1997.
F-12
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The Company has committed to the acquisition of low income tax credits from
a real estate partnership totaling $214,479 through fiscal 2000. The Company
utilized $80,428 and $80,430 of credits during fiscal 1997 and the nine-month
period ended March 31, 1998 to reduce its federal income taxes payable.
7. EQUIPMENT AND IMPROVEMENTS
Equipment and improvements consist of the following:
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF MARCH 31,
-------------------------- ---------------
1996 1997 1998
------------ ------------ ---------------
<S> <C> <C> <C>
Leasehold improvements............................................... $ 6,148,752 $ 6,435,588 $ 7,330,288
Furniture, fixtures, equipment and vehicles.......................... 3,265,417 3,156,982 3,937,285
Computer hardware and software....................................... 1,415,590 1,890,684 1,986,681
Assets under capital leases.......................................... 459,444 469,621
Construction in progress............................................. 155,972 161,818 128,806
------------ ------------ ---------------
Total.............................................................. 10,985,731 12,104,516 13,852,681
Less accumulated depreciation and amortization....................... 3,095,298 4,565,055 5,784,700
------------ ------------ ---------------
Equipment and improvements, net...................................... $ 7,890,433 $ 7,539,461 $ 8,067,981
------------ ------------ ---------------
------------ ------------ ---------------
</TABLE>
8. EMPLOYEE BENEFIT PLAN
In fiscal 1995, the Company implemented a 401(k) pension plan for all
eligible employees. Employees are eligible to participate in the plan if they
have been employed by the Company for one year, have reached age 21, and work at
least 1,000 hours annually. Generally, employees can defer up to 15% of their
gross wages up to the maximum limit allowable under the Internal Revenue Code.
The employer can make a discretionary matching contribution for the employee.
Employer contributions to the plan for the years ended June 30, 1996 and 1997
were $35,947 and $32,688, respectively. No matching payments have been made by
the Company for the nine months ended March 31, 1997 and 1998.
9. STOCK OPTIONS
On June 26, 1997 the Board of Directors adopted the 1997 Stock Plan (the
"Stock Plan"). Options granted under the Stock Plan have a ten-year term and may
be either incentive stock options, non-qualified stock options, stock purchase
rights or stock awards. The Company has reserved 2,830,000 shares of common
stock for issuance under the Stock Plan.
The options granted are immediately exercisable, but are subject to
repurchase at the original exercise price in the event that the optionee's
employment with the Company ceases for any reason. The Company's right of
repurchase generally lapses over a four-year period as follows: 20% in each of
the first two years after the grant date and 30% in the third and fourth years
after the grant date, with full lapse of the repurchase option occurring on the
fourth anniversary date.
F-13
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
The following summarizes all stock option transactions for the year ended
June 30, 1997 and the nine-month period ended March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES OUTSTANDING PRICE PER SHARE
------------------ -------------------
<S> <C> <C>
Balance, June 30, 1996
Options granted............................................................. 1,587,630 1.77
----------
Balance, June 30, 1997...................................................... 1,587,630 1.77
Options granted............................................................. 325,450 5.65
Options canceled............................................................ (130,180) 4.30
----------
Balance, March 31, 1998..................................................... 1,782,900 2.29
----------
----------
</TABLE>
The options granted in June 1997 resulted in deferred compensation of
$2,805,000 (assuming all such options become fully vested) to be amortized over
the vesting period of the related options, of which, $527,512 was expensed for
the nine-month period ended March 31, 1998. As of June 30, 1997 and March 31,
1998, there were 1,242,370 and 1,047,100 shares available for future grant.
The following table summarizes information about stock options outstanding
at March 31, 1998:
<TABLE>
<CAPTION>
EXERCISABLE OPTIONS NOT
SUBJECT TO REPURCHASE
OPTIONS OUTSTANDING (VESTED)
---------------------------------------- -------------------------
WEIGHTED NUMBER OF WEIGHTED
WEIGHTED AVERAGE AVERAGE OPTIONS AT AVERAGE
EXERCISE NUMBER OF REMAINING LIFE EXERCISE MARCH 31, EXERCISE
PRICE OPTIONS (IN YEARS) PRICE 1998 PRICE
- ------------- ---------- ----------------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
$1.77 1,542,350 9.25 $1.77 -- $1.77
5.65 240,550 9.75 5.65 -- 5.65
</TABLE>
The Company accounts for the Stock Plan in accordance with APB Opinion No.
25, under which no compensation cost has been recognized for stock option awards
granted at fair market value. Had compensation expense for the Stock Plan been
determined based on the fair value at the grant dates for awards under the Stock
Plan, consistent with the method of SFAS No. 123, the Company's net earnings,
basic EPS and diluted EPS would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
---------------- ------------------
<S> <C> <C> <C>
Net income As reported................................................ $ 5,149,519 $ 12,542,061
Pro forma.................................................. 5,147,785 12,412,155
Basic EPS As reported................................................ $ 0.23 $ 0.55
Pro forma.................................................. 0.23 0.55
Diluted EPS As reported................................................ $ 0.23 $ 0.53
Pro forma.................................................. 0.23 0.52
</TABLE>
F-14
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
The weighted average fair value of options granted during the fiscal year
ended June 30, 1997 and the nine months ended March 31, 1998 was $2.44 and
$1.64, respectively. The fair value of each option grant was estimated on the
date of the grant using the minimum value method with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
--------------------- -----------------------
<S> <C> <C>
Expected dividend rate..................................................... 0.0% 0.0%
Expected volatility........................................................ 0.0% 0.0%
Risk-free interest rate.................................................... 6.0% 5.7%
Expected lives (years)..................................................... 8.0 6.0
</TABLE>
10. LITIGATION
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. Management believes, based on the advice of
counsel, that ultimate resolution of these matters will not have a material
adverse effect on the financial statements taken as a whole.
11. RELATED PARTY TRANSACTIONS
In March 1995, the Company purchased from Manny Mashouf, the Chairman,
President and Chief Executive Officer of the Company, certain residential
property for $800,000. In February 1997, the Company sold the property to an
unaffiliated third party for $696,000, net of selling costs. During the last
three fiscal years, Mr. Mashouf has loaned to or borrowed from the Company
various amounts of cash ranging from loans to the Company of up to $500,000 and
advances from the Company of up to $150,000. As of March 31, 1998, there were no
borrowings due to Mr. Mashouf from the Company or advances owed to the Company
by Mr. Mashouf.
12. EARNINGS PER SHARE
Under SFAS No. 128, the Company provides dual presentation of EPS on a basic
and diluted basis. The Company's granting of certain stock options resulted in
potential dilution of basic EPS. The following table summarizes the difference
between basic weighted average shares outstanding and diluted weighted average
shares outstanding used to compute diluted EPS.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
---------------------------------- ------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic weighted average number of
shares outstanding............... 22,639,997 22,639,997 22,639,997 22,639,997 22,639,997
Incremental shares from assumed
issuance of stock options........ 10,874 1,065,315
---------- ---------- ---------- ----------- ----------
Diluted weighted average number of
shares outstanding............... 22,639,997 22,639,997 22,650,871 22,639,997 23,705,312
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
</TABLE>
The number of incremental shares from the assumed issuance of stock options
is calculated applying the treasury stock method.
F-15
<PAGE>
BEBE STORES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. SUBSEQUENT EVENTS
LINE OF CREDIT. On April 1, 1998, the Company entered into an unsecured
commercial line of credit agreement with a bank which provides for borrowings
and issuance of letters of credit of up to $5,000,000 and expires on April 1,
2000. The outstanding balance bears interest at either the bank's reference rate
or the LIBOR rate plus 1.75 percentage points. The agreement requires
maintenance of certain financial covenants and total liabilities to tangible net
worth ratios, and places restrictions on capital expenditures and the payment of
cash dividends and repurchase of shares.
STOCK SPLIT AND CHANGE IN PAR VALUE. On April 7, 1998, the Company's Board
of Directors authorized a 2.83-for-1 stock split and restated its common stock
par value from $0.00 to $0.001 per share. Accordingly, a transfer was made from
additional paid-in capital to common stock. All information in the financial
statements concerning common shares and per share amounts have been restated to
give retroactive effect to the stock split and change in par value.
PREFERRED STOCK. On April 7, 1998, the Company shareholders granted the
Board of Directors the authority to issue up to 1,000,000 shares of $0.001 par
value preferred stock and to fix the rights, preferences, privileges and
restrictions including voting rights, of these shares without any further vote
or approval by the shareholders.
STOCK PURCHASE PLAN. On April 7, 1998, the Company's 1998 Employee Stock
Purchase Plan (the "Plan") was adopted and approved by the shareholders. A total
of 750,000 shares of common stock has been reserved for issuance under the Plan.
Generally, the Plan will allow eligible employees to purchase the Company's
common stock in an amount which may not exceed 10% of the employee's
compensation. The Plan will be implemented by an initial 24-month offering
period, which will generally be comprised of four, six-month purchase periods.
Shares will be purchased on the last day of each purchase period (a "Purchase
Date") at a price equal to 85% of the lower of fair market value of the
Company's common stock on the first day of the offering period or the Purchase
Date. The Board (or committee thereof) may amend or terminate the Purchase Plan
at any time.
F-16
<PAGE>
[WOMAN IN BEBE CLOTHING]
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions payable by the Registrant in connection with the sale
of the Common Stock being registered. The Company is paying all of the expenses
incurred on behalf of the Selling Shareholder (other than underwriting discounts
and commissions). All amounts shown are estimates except for the registration
fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-----------
<S> <C>
SEC Registration Fee.................................................... $ 11,026
NASD Filing Fee......................................................... 4,238
Nasdaq National Market Application Fee.................................. 27,795
Printing and Engraving Expenses......................................... 100,000
Legal Fees and Expenses................................................. 200,000
Accounting Fees and Expenses............................................ 300,000
Transfer Agent and Registrar Fees....................................... 2,500
Miscellaneous Expenses.................................................. 54,441
-----------
Total................................................................. $ 700,000
-----------
-----------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The California Corporations Code provides for the indemnification of
directors, officers, employees and agents of the corporation under certain
circumstances set forth in section 317. Section 317 permits a corporation to
indemnify its agents, typically directors and officers, for expenses incurred or
settlements or judgments paid in connection with certain legal proceedings. Only
those legal proceedings arising out of such persons' actions as agents of the
corporation may be grounds for indemnification.
Whether or not indemnification may be paid in a particular case depends upon
whether the agent wins, loses or settles the suit and upon whether a third party
or the corporation itself is the plaintiff. The section provides for mandatory
indemnification, no matter who the plaintiff is, when an agent is successful on
the merits of a suit. In all other cases, indemnification is permissive.
If the agent loses or settles a suit brought by a third party, he or she may
be indemnified for expenses incurred and settlements or judgments paid. Such
indemnification may be authorized upon finding that the agent acted in good
faith and in a manner he or she reasonably believed to be in the best interests
of the corporation.
If the agent loses or settles a suit brought by or on behalf of the
corporation, his or her right to indemnification is more limited. If he or she
is adjudged to be liable to the corporation, the court in which such proceeding
was held must determine whether it would be fair and reasonable to indemnify him
or her for expenses which such court shall determine. If the agent settles such
a suit with court approval, he or she may be indemnified for expenses incurred
upon a finding that the agent acted in good faith and in a manner he or she
reasonably believed to be in the best interest of the corporation and, in
addition, that he or she acted with the care, including reasonable inquiry of an
ordinarily prudent person.
The indemnification discussed above may be authorized by a majority vote of
the disinterested directors or shareholders (the person to be indemnified is
excluded from voting his or her shares) or the court in which the proceeding was
brought. The corporation's Board of Directors makes all decisions regarding the
indemnification of its officers and directors on a case-by-case basis.
II-1
<PAGE>
Any provision in the corporation's Articles of Incorporation or Bylaws
contained in a shareholder or director resolution that indemnifies its officers
or directors must be consistent with section 317. Moreover, such a provision may
prohibit permissive, but not mandatory, indemnification as described above.
Lastly, a corporation has the power to purchase indemnity insurance for its
agents even if it would not have the power to indemnify them.
The Registrant's Amended and Restated Articles of Incorporation authorize
the Board of Directors to provide indemnification of its agents through bylaw
provisions or indemnification agreements, or both, in excess of the
indemnification otherwise permitted by section 317, subject to the limits on
such excess indemnification set forth in section 204 of the California
Corporations Code.
The Registrant has entered into agreements to indemnify its directors and
officers. These agreements, among other things, indemnify the Registrant's
directors and officers for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of the Registrant,
arising out of such person's services as a director or officer of the
Registrant, any subsidiary of the Registrant or any other Registrant or
enterprise to which the person provides services at the request of the
Registrant.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the act and is therefore unenforceable.
See also related undertakings in Item 17 below.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In June 1997 and December 1997, the Registrant issued to its directors and
employees options to purchase an aggregate of 1,913,080 shares of Common Stock,
at exercise prices ranging from $1.77 to $5.65 per share, pursuant to the
Registrant's 1997 Stock Plan. The granting of these stock options did not
require registration under the Securities Act, as amended (the "Securities
Act"), or an exemption therefrom, insofar as such grants did not involve a
"sale" of securities as such term is used in Section 2(3) of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1* Amended and Restated Articles of Incorporation of the Registrant.
3.2 Certificate of Correction of the Amended and Restated Articles of Incorporation of the Registrant.
3.3 Bylaws of the Registrant.
4.1 Specimen certificate representing the Common Stock (in standard printer form, not provided).
5.1* Opinion of Gray Cary Ware & Freidenrich LLP.
10.1** 1997 Stock Plan.
10.2** 1998 Employee Stock Purchase Plan.
10.3 Form of Indemnification Agreement.
10.4* Standard Industrial/Commercial-Tenant Lease-Net dated August 8, 1994 between the Registrant and
California State Teachers' Retirement System, as amended (lease for corporate headquarters and
distribution center in Brisbane, California).
10.5+* Retail Store License Agreement between the Registrant and Bebe Moda S.A. de C.V., a Mexican company,
effective as of April 1, 1998.
11.1 Statement of Computation of Net Earnings Per Share.
16.1* Letter from Wilson, McCall & Daoro dated April 10, 1998 regarding change in certifying accountants.
23.1 Independent Auditors' Consent and Report on Schedule.
23.2* Consent of Gray Cary Ware & Freidenrich LLP (see Exhibit 5.1).
24.1* Power of Attorney.
27.1 Financial Data Schedule (EDGAR filed version only).
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment has been requested.
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the Offerings of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Brisbane, State of California, on the 18th day of May, 1998.
<TABLE>
<S> <C> <C>
BEBE STORES, INC.
By: /s/ BLAIR W. LAMBERT
-----------------------------------------
Blair W. Lambert
VICE PRESIDENT, FINANCE AND CHIEF
FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ MANNY MASHOUF* Officer and Chairman of
- ------------------------------ the Board (Principal May 18, 1998
Manny Mashouf Executive Officer)
Vice President, Finance
/s/ BLAIR W. LAMBERT and Chief Financial
- ------------------------------ Officer (Principal May 18, 1998
Blair W. Lambert Financial and Accounting
Officer)
/s/ NEDA MASHOUF*
- ------------------------------ Director May 18, 1998
Neda Mashouf
/s/ BARBARA BASS*
- ------------------------------ Director May 18, 1998
Barbara Bass
/s/ CORRADO FEDERICO*
- ------------------------------ Director May 18, 1998
Corrado Federico
/s/ PHILIP SCHLEIN*
- ------------------------------ Director May 18, 1998
Philip Schlein
</TABLE>
<TABLE>
<S> <C>
*By: /s/ BLAIR W. LAMBERT
--------------------------------------
Blair W. Lambert
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
SCHEDULE II
BEBE STORES, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C
-----------------------
COLUMN B ADDITIONS
------------ ----------------------- COLUMN E
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D -------------
- ------------------------------------ BEGINNING OF COSTS AND OTHER ---------- BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTION END OF PERIOD
- ------------------------------------ ------------ ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995
Inventory obsolescence reserve...... $ 200,000 $ 200,000 $ 400,000
Allowance for doubtful accounts
receivable........................ 5,000 105,969 $ 75,969 35,000
Deferred tax asset valuation
allowance......................... 35,990 66,654 102,644
------------ ---------- ----------- ---------- -------------
$ 240,990 $ 372,623 $ $ 75,969 $ 537,644
------------ ---------- ----------- ---------- -------------
------------ ---------- ----------- ---------- -------------
YEAR ENDED JUNE 30, 1996
Inventory obsolescence reserve...... $ 400,000 $ 80,000 $ 100,000 $ 380,000
Allowance for doubtful accounts
receivable........................ 35,000 53,587 75,087 13,500
Deferred tax asset valuation
allowance......................... 102,644 5,000 107,644
------------ ---------- ----------- ---------- -------------
$ 537,644 $ 138,587 $ $ 175,087 $ 501,144
------------ ---------- ----------- ---------- -------------
------------ ---------- ----------- ---------- -------------
YEAR ENDED JUNE 30, 1997
Inventory obsolescence reserve...... $ 380,000 $ 441,556 $ 821,556
Allowance for doubtful accounts
receivable........................ 13,500 78,649 $ 15,481 76,668
Deferred tax asset valuation
allowance......................... 107,644 107,644 0
Reserve for store closures.......... 271,543 271,543
------------ ---------- ----------- ---------- -------------
$ 501,144 $ 791,748 $ $ 123,125 $ 1,169,767
------------ ---------- ----------- ---------- -------------
------------ ---------- ----------- ---------- -------------
NINE-MONTH PERIOD ENDED MARCH 31,
1998
Inventory obsolescence reserve...... $ 821,556 $1,637,182 $ 157,137 $ 2,301,601
Allowance for doubtful accounts
receivable........................ 76,668 59,631 89,448 46,851
Reserve for store closures.......... 271,543 (92,896) (204,241) 382,888
------------ ---------- ----------- ---------- -------------
$1,169,767 $1,696,813 $ (92,896) $ 42,344 $ 2,731,340
------------ ---------- ----------- ---------- -------------
------------ ---------- ----------- ---------- -------------
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* Amended and Restated Articles of Incorporation of the Registrant.
3.2 Certificate of Correction of the Amended and Restated Articles of Incorporation of the
Registrant.
3.3 Bylaws of the Registrant.
4.1 Specimen certificate representing the Common Stock (in standard printer form, not provided).
5.1* Opinion of Gray Cary Ware & Freidenrich LLP.
10.1** 1997 Stock Plan.
10.2** 1998 Employee Stock Purchase Plan.
10.3 Form of Indemnification Agreement.
10.4* Standard Industrial/Commercial-Tenant Lease-Net dated August 8, 1994 between the Registrant
and California State Teachers' Retirement System, as amended (lease for corporate
headquarters and distribution center in Brisbane, California).
10.5+* Retail Store License Agreement between the Registrant and Bebe Moda S.A. de C.V., a Mexican
company, effective as of April 1, 1998.
11.1 Statement of Computation of Net Earnings Per Share.
16.1* Letter from Wilson, McCall & Daoro dated April 10, 1998 regarding change in certifying
accountants.
23.1 Independent Auditors' Consent and Report on Schedule.
23.2* Consent of Gray Cary Ware & Freidenrich LLP (see Exhibit 5.1).
24.1* Power of Attorney.
27.1 Financial Data Schedule (EDGAR filed version only).
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment has been requested.
<PAGE>
2,500,000 SHARES (1)
BEBE STORES, INC.
COMMON STOCK
FORM OF UNDERWRITING AGREEMENT
June __, 1998
BANCAMERICA ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
As Representatives of the Several Underwriters
c/o BancAmerica Robertson Stephens
555 California Street
Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
bebe stores, inc., a California corporation (the "Company"), and the
shareholder of the Company named in Schedule B hereto (hereafter called the
"Selling Shareholder") address you as the Representatives of each of the
persons, firms and corporations listed in Schedule A hereto (herein
collectively called the "Underwriters") and hereby confirm their respective
agreements with the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
1,250,000 shares of its authorized and unissued Common Stock, par value
$0.001 per share, to the several Underwriters. The Selling Shareholder
proposes to sell an aggregate of 1,250,000 shares of the Company's authorized
and outstanding Common Stock, par value $0.001 per share, to the several
Underwriters. The 1,250,000 shares of Common Stock, par value $0.001 per
share, of the Company to be sold by the Company are hereinafter called the
"Company Shares" and the 1,250,000 shares of Common Stock, par value $0.001
per share, to be sold by the Selling Shareholder are hereinafter called the
"Selling Shareholder Shares." The Company Shares and the Selling Shareholder
Shares are hereinafter collectively referred to as the "Firm Shares." The
Selling Shareholder also proposes to grant to the Underwriters an option to
purchase up to 375,000 additional shares of the Company's Common Stock, par
value $0.001 per share, (the "Option Shares"), as provided in Section 7
hereof. As used in this Agreement, the term "Shares" shall include the Firm
Shares and the Option Shares.
- ------------------------
(1) Plus an option to purchase up to 375,000 additional shares from the Selling
Shareholder to cover over-allotments.
<PAGE>
All shares of Common Stock, par value $0.001 per share, of the Company to
be outstanding after giving effect to the sales contemplated hereby,
including the Shares, are hereinafter referred to as "Common Stock."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
SELLING SHAREHOLDER.
I. The Company and the Selling Shareholder, jointly and
severally, represent and warrant to and agree with each Underwriter that:
(a) A registration statement on Form S-1 (File No. 333-50333)
with respect to the Shares, including a prospectus subject to completion, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration
statements pursuant to Rule 462(b) of the Rules and Regulations as may have
been required prior to the date hereof have been similarly prepared and filed
with the Commission; and the Company will file such additional amendments to
such registration statement, such amended prospectuses subject to completion
and such abbreviated registration statements as may hereafter be required.
Copies of such registration statement and amendments, of each related
prospectus subject to completion (the "Preliminary Prospectuses") and of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations have been delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare
and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if BancAmerica Robertson
Stephens, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or
(c), as applicable, of the Rules and Regulations pursuant to subparagraph
(1), (4) or (7) of Rule 424(b) of the Rules and Regulations or as part of a
post-effective amendment to the registration statement (including a final
form of prospectus). If the registration statement relating to the Shares
has not been declared effective under the Act by the Commission, the Company
will prepare and promptly file an amendment to the registration statement,
including a final form of prospectus, or, if BancAmerica Robertson Stephens,
on behalf of the several Underwriters, shall agree to the utilization of Rule
434 of the Rules and Regulations, the information required to be included in
any term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the
Rules and Regulations. The term "Registration Statement" as used in this
Agreement shall mean such registration statement, including financial
statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files
a term sheet pursuant to Rule 434 of the Rules and Regulations, the
information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and
-2-
<PAGE>
Regulations) and, in the event of any amendment thereto or the filing of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations relating thereto after the effective date of such registration
statement, shall also mean (from and after the effectiveness of such
amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement
shall mean the prospectus relating to the Shares as included in such
Registration Statement at the time it becomes effective (including, if the
Company omitted information from the Registration Statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of
the Registration Statement at the time it became effective pursuant to Rule
430A(b) of the Rules and Regulations); PROVIDED, HOWEVER, that if in reliance
on Rule 434 of the Rules and Regulations and with the consent of BancAmerica
Robertson Stephens, on behalf of the several Underwriters, the Company shall
have provided to the Underwriters a term sheet pursuant to Rule 434(b) or
(c), as applicable, prior to the time that a confirmation is sent or given
for purposes of Section 2(10)(a) of the Act, the term "Prospectus" shall mean
the "prospectus subject to completion" (as defined in Rule 434(g) of the
Rules and Regulations) last provided to the Underwriters by the Company and
circulated by the Underwriters to all prospective purchasers of the Shares
(including the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 434(d) of the Rules and
Regulations). Notwithstanding the foregoing, if any revised prospectus shall
be provided to the Underwriters by the Company for use in connection with the
offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the Underwriters
for such use. If in reliance on Rule 434 of the Rules and Regulations and
with the consent of BancAmerica Robertson Stephens, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term
sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act,
the Prospectus and the term sheet, together, will not be materially different
from the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings
for that purpose, and each such Preliminary Prospectus has conformed in all
material respects to the requirements of the Act and the Rules and
Regulations and, as of its date, did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up
to and on the Closing Date (hereinafter defined) and on any later date on
which Option Shares are to be purchased, (i) the Registration Statement and
the Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the Act
and the Rules and Regulations and will in all material respects conform to
the requirements of the Act and the Rules and Regulations, (ii) the
Registration Statement, and any amendments or supplements thereto, did not
and will not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements
-3-
<PAGE>
therein not misleading, and (iii) the Prospectus, and any amendments or
supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by
such Underwriter specifically for use in the preparation thereof.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction
of its incorporation with full power and authority (corporate and other) to
own, lease and operate its properties and conduct its business as described
in the Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified or
be in good standing would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company; no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit
or curtail, such power and authority or qualification; the Company is in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities that are material to the conduct of its business, all
of which are valid and in full force and effect; the Company is not in
violation of its charter or bylaws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material bond, debenture, note or other evidence of
indebtedness, or in any material lease, contract, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or instrument to
which the Company is a party or by which its properties may be bound; and the
Company is not in material violation of any law, order, rule, regulation,
writ, injunction, judgment or decree of any court, government or governmental
agency or body, domestic or foreign, having jurisdiction over the Company or
its properties of which it has knowledge. The Company does not own or
control, directly or indirectly, any corporation, association or other entity.
(d) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement
hereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles; the performance of this
Agreement and the consummation of the transactions herein contemplated will
not result in a material breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any bond, debenture, note
or other evidence of indebtedness, or under any lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Company is a party or by which it or its respective
properties may be bound, (ii) the charter or bylaws of the Company, or (iii)
any law, order, rule, regulation, writ, injunction, judgment
-4-
<PAGE>
or decree of any court, government or governmental agency or body, domestic
or foreign, having jurisdiction over the Company or over its respective
properties. No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its respective
properties is required for the execution and delivery of this Agreement and
the consummation by the Company of the transactions herein contemplated,
except such as may be required under the Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or under state or other securities or
Blue Sky laws, all of which requirements have been satisfied in all material
respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company,
or any of its respective officers or any of its respective properties, assets
or rights before any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its
respective officers or properties or otherwise which (i) might result in any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company or might materially
and adversely affect its properties, assets or rights, (ii) might prevent
consummation of the transactions contemplated hereby or (iii) is required to
be disclosed in the Registration Statement or Prospectus and is not so
disclosed; and there are no agreements, contracts, leases or documents of the
Company of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement by the Act or the Rules and Regulations which have
not been accurately described in all material respects in the Registration
Statement or Prospectus or filed as exhibits to the Registration Statement .
(f) All outstanding shares of capital stock of the Company
(including the Selling Shareholder Shares and the Option Shares) have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, and
were not issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities, and the authorized and
outstanding capital stock of the Company is as set forth in the Prospectus
under the caption "Capitalization" and conforms in all material respects to
the statements relating thereto contained in the Registration Statement and
the Prospectus (and such statements correctly state the substance of the
instruments defining the capitalization of the Company); the Company Shares
have been duly authorized for issuance and sale to the Underwriters pursuant
to this Agreement and, when issued and delivered by the Company against
payment therefor in accordance with the terms of this Agreement, will be duly
and validly issued and fully paid and nonassessable, and will be sold free
and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest. No preemptive right, co-sale right, registration right,
right of first refusal or other similar right of shareholders exists with
respect to any of the Firm Shares or the issuance and sale thereof other than
those that have been expressly waived prior to the date hereof and those that
will automatically expire upon and will not apply to the consummation of the
transactions contemplated on or before the Closing Date. No further approval
or authorization of any shareholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Shares except
as may be required under the Act, the Exchange Act or under state or other
securities or Blue Sky laws. Except as disclosed in the Prospectus and the
financial
-5-
<PAGE>
statements of the Company, and the related notes thereto, included in the
Prospectus, the Company does not have outstanding any options to purchase, or
any preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments
to issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and the
options or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.
(g) Deloitte & Touche LLP, which has examined the financial
statements of the Company, together with the related schedules and notes, (i)
as of June 30, 1997 and March 31, 1998 and (ii) for each of the years in the
three (3) years ended June 30, 1997 and for the nine months ended March 31,
1998, filed with the Commission as a part of the Registration Statement,
which are included in the Prospectus, are independent accountants within the
meaning of the Act and the Rules and Regulations; the audited financial
statements of the Company, together with the related schedules and notes, and
the unaudited financial information, forming part of the Registration
Statement and Prospectus, fairly present the financial position and the
results of operations of the Company at the respective dates and for the
respective periods to which they apply; and all audited financial statements
of the Company, together with the related schedules and notes, and the
unaudited financial information, filed with the Commission as part of the
Registration Statement, have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as may be otherwise stated therein. The selected and summary
financial and statistical data included in the Registration Statement present
fairly the information shown therein and have been compiled on a basis
consistent with the audited financial statements presented therein. No other
financial statements or schedules are required to be included in the
Registration Statement.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has
not been (i) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company, (ii) any transaction that is material to the Company, except
transactions entered into in the ordinary course of business, (iii) any
obligation, direct or contingent, that is material to the Company, incurred
by the Company, except obligations incurred in the ordinary course of
business, (iv) any change in the capital stock or outstanding indebtedness of
the Company that is material to the Company, (v) any dividend or distribution
of any kind declared, paid or made on the capital stock of the Company, or
(vi) any loss or damage (whether or not insured) to the property of the
Company which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company.
(i) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties
and assets described in the Registration Statement and Prospectus as owned by
it, free and clear of any pledge, lien, security interest, encumbrance, claim
or equitable interest, other than such as would not have a material adverse
effect
-6-
<PAGE>
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company, (ii) the agreements to which the Company
is a party described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company (as applicable), except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles and, to the
best of the Company's knowledge, the other contracting party or parties
thereto are not in material breach or material default under any of such
agreements, and (iii) the Company has valid and enforceable leases for all
properties described in the Registration Statement and Prospectus as leased
by it, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles. Except as set forth in the Registration Statement and
Prospectus, the Company owns or leases all such properties as are necessary
to its operations as now conducted or as proposed to be conducted.
(j) The Company has timely filed all necessary federal, state
and foreign income and franchise tax returns and has paid all taxes shown
thereon as due, and there is no tax deficiency that has been or, to the best
of the Company's knowledge, might be asserted against the Company that might
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company; and all
tax liabilities are adequately provided for on the books of the Company.
(k) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for its respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including,
but not limited to, insurance covering real and personal property owned or
leased by the Company against theft, damage, destruction, acts of vandalism
and all other risks customarily insured against, all of which insurance is in
full force and effect; the Company has not been refused any insurance
coverage sought or applied for; and the Company does not have any reason to
believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would
not materially and adversely affect the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
(l) To the best of Company's knowledge, no labor disturbance
by the employees of the Company exists or is imminent; and the Company is not
aware of any existing or imminent labor disturbance by the employees of any
of its principal suppliers, subassemblers, subcontractors or international
distributors that might be expected to result in a material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company. No collective bargaining agreement exists
with any of the Company's employees and, to the best of the Company's
knowledge, no such agreement is imminent.
(m) The Company owns or possesses adequate rights to use all
patents, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names and copyrights which are necessary to conduct its
businesses as described in the Registration Statement
-7-
<PAGE>
and Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company; the Company has
not received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of the Company by others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names or copyrights; and the Company has not received
any notice of, nor has any knowledge of, any infringement of or conflict with
asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names
or copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, might have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company.
(n) The Common Stock has been approved for quotation on The
Nasdaq National Market, subject to official notice of issuance.
(o) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it is not
and will not become an "investment company" or a company "controlled" by an
"investment company" within the meaning of the 1940 Act and such rules and
regulations.
(p) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option
Shares are to be purchased, as the case may be, and (ii) completion of the
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted
by the Act.
(q) The Company has not at any time during the last five (5)
years (i) made any unlawful contribution to any candidate for foreign office
or failed to disclose fully any contribution in violation of law, or (ii)
made any payment to any federal or state governmental officer or official, or
other person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(r) The Company and the Selling Shareholder have not taken
and will not take, directly or indirectly, any action designed to or that
might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of the Shares.
(s) Each officer and director of the Company and each
beneficial owner of Common Stock has agreed in writing that such person will
not, for a period of 180 days after the date of the Prospectus (the "Lock-up
Period"), offer to sell, contract to sell, or otherwise sell, dispose of,
loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock or any securities convertible into or
exchangeable for shares of Common Stock (collectively, "Securities") now
owned
-8-
<PAGE>
or hereafter acquired directly by such person or with respect to which such
person has or hereafter acquires the power of disposition, otherwise than (i)
as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to partners
or shareholders of such person, provided that the distributees thereof agree
in writing to be bound by the terms of this restriction, or (iii) with the
prior written consent of BancAmerica Robertson Stephens. The foregoing
restriction has been expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is
designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-up Period, even if such Securities would be
disposed of by someone other than such holder. Such prohibited hedging or
other transactions would include, without limitation, any short sale (whether
or not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from the Securities. Furthermore, such person has also agreed and
consented to the entry of stop transfer instructions with the Company's
transfer agent against the transfer of the Securities held by such person
except in compliance with this restriction. The Company has provided to
counsel for the Underwriters a complete and accurate list of all
securityholders of the Company and the number and type of securities held by
each securityholder. The Company has provided to counsel for the
Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors, shareholders and option holders
have agreed to such or similar restrictions (the "Lock-up Agreements")
presently in effect or effected hereby. The Company hereby represents and
warrants that all of its option holders have signed a Lock-up Agreement and
it will not release any of its officers, directors or other shareholders from
any Lock-up Agreements currently existing or hereafter effected without the
prior written consent of BancAmerica Robertson Stephens.
(t) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, (ii) the Company has not received
notice from any governmental authority or third party of an asserted claim
under Environmental Laws, which claim is required to be disclosed in the
Registration Statement and the Prospectus and is not so disclosed, (iii) the
Company will not be required to make future material capital expenditures to
comply with Environmental Laws and (iv) no property which is owned, leased or
occupied by the Company has been designated as a Superfund site pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended (42 U.S.C. Section 9601, ET SEQ.), or otherwise designated
as a contaminated site under applicable state or local law.
(u) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access
to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
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compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(v) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus.
(w) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of
Cuba or with any person or affiliate located in Cuba.
II. The Selling Shareholder represents and warrants to and agrees
with each Underwriter and the Company that:
(a) The Selling Shareholder now has and on the Closing Date,
and on any later date on which Option Shares are purchased, will have valid
marketable title to the Shares to be sold by such Selling Shareholder, free
and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than pursuant to this Agreement; and upon delivery
of such Shares hereunder and payment of the purchase price as herein
contemplated, each of the Underwriters will obtain valid marketable title to
the Shares purchased by it from such Selling Shareholder, free and clear of
any pledge, lien, security interest pertaining to such Selling Shareholder or
such Selling Shareholder's property, encumbrance, claim or equitable
interest, including any liability for estate or inheritance taxes, or any
liability to or claims of any creditor, devisee, legatee or beneficiary of
such Selling Shareholder.
(b) The Selling Shareholder has duly executed and delivered,
in the form heretofore furnished to the Representatives, an irrevocable Power
of Attorney (the "Power of Attorney") appointing ___________ and ___________
as attorneys-in-fact (collectively, the "Attorneys" and individually, an
"Attorney") and a Letter of Transmittal and Custody Agreement (the "Custody
Agreement") with ______________________________, as custodian (the
"Custodian"); each of the Power of Attorney and the Custody Agreement
constitutes a valid and binding agreement on the part of such Selling
Shareholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and each of
such Selling Shareholder's Attorneys, acting alone, is authorized to execute
and deliver this Agreement and the certificate referred to in Section 6(h)
hereof on behalf of such Selling Shareholder, to determine the purchase price
to be paid by the several Underwriters to such Selling Shareholder as
provided in Section 3 hereof, to authorize the delivery of the Selling
Shareholder Shares and the Option Shares to be sold by the Selling
Shareholder under this Agreement and to duly endorse (in blank or otherwise)
the certificate or certificates representing such Shares or a stock power or
powers with respect thereto, to accept payment therefor, and otherwise to act
on behalf of such Selling Shareholder in connection with this Agreement.
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(c) All consents, approvals, authorizations and orders
required for the execution and delivery by such Selling Shareholder of the
Power of Attorney and the Custody Agreement, the execution and delivery by or
on behalf of such Selling Shareholder of this Agreement and the sale and
delivery of the Selling Shareholder Shares and the Option Shares to be sold
by the Selling Shareholder under this Agreement (other than, at the time of
the execution hereof (if the Registration Statement has not yet been declared
effective by the Commission), the issuance of the order of the Commission
declaring the Registration Statement effective and such consents, approvals,
authorizations or orders as may be necessary under state or other securities
or Blue Sky laws) have been obtained and are in full force and effect.
(d) Certificates in negotiable form for all Shares to be sold
by such Selling Shareholder under this Agreement, together with a stock power
or powers duly endorsed in blank by such Selling Shareholder, have been
placed in custody with the Custodian for the purpose of effecting delivery
hereunder.
(e) This Agreement has been duly executed and delivered by or
on behalf of such Selling Shareholder and is a valid and binding agreement of
such Selling Shareholder, enforceable in accordance with its terms, except as
rights to indemnification hereunder may be limited by applicable law and
except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a material breach or violation of any of the
terms and provisions of, or constitute a default under, (i) any bond,
debenture, note or other evidence of indebtedness, or under any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture
or other agreement or instrument to which such Selling Shareholder is a party
or by which such Selling Shareholder, or any Selling Shareholder Shares or
any Option Shares to be sold by such Selling Shareholder hereunder or any
properties of such Selling Stockholder may be bound, or (ii) to the best of
such Selling Shareholder' knowledge, result in any violation of any law,
order, rule, regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over such Selling Shareholder or over the properties of such
Selling Shareholder.
(f) All information furnished by or on behalf of such Selling
Shareholder relating to such Selling Shareholder and the Selling Shareholder
Shares and the Option Shares that is contained in the representations and
warranties of such Selling Shareholder in such Selling Shareholder's Power of
Attorney or set forth in the Registration Statement or the Prospectus is, and
at the time the Registration Statement became or becomes, as the case may be,
effective and at all times subsequent thereto up to and on the Closing Date,
and on any later date on which Option Shares are to be purchased, was or will
be, true, correct and complete, and does not, and at the time the
Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined), and on any later date on which Option Shares are to be purchased,
will not, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make such
information not misleading.
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(g) Such Selling Shareholder will review the Prospectus and
will comply with all agreements and satisfy all conditions on its part to be
complied with or satisfied pursuant to this Agreement on or prior to the
Closing Date, or any later date on which Option Shares are to be purchased,
as the case may be, and will advise one of its Attorneys and BancAmerica
Robertson Stephens prior to the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, if any statement to be
made on behalf of such Selling Shareholder in the certificate contemplated by
Section 6(h) would be inaccurate if made as of the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be.
(h) Such Selling Shareholder does not have, or has waived
prior to the date hereof, any preemptive right, co-sale right or right of
first refusal or other similar right to purchase any of the Shares that are
to be sold by the Company to the Underwriters pursuant to this Agreement;
such Selling Shareholder does not have, or has waived prior to the date
hereof, any registration right or other similar right to participate in the
offering made by the Prospectus, other than such rights of participation as
have been satisfied by the participation of such Selling Shareholder in the
transactions to which this Agreement relates in accordance with the terms of
this Agreement; and such Selling Shareholder does not own any warrants,
options or similar rights to acquire, and does not have any right or
arrangement to acquire, any capital stock, rights, warrants, options or other
securities from the Company, other than those described in the Registration
Statement and the Prospectus.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company and the Selling
Shareholder agree, severally and not jointly, to sell to the Underwriters,
and each Underwriter agrees, severally and not jointly, to purchase from the
Company and the Selling Shareholder, respectively, at a purchase price of
$_____ per share, the respective number of Firm Shares set forth opposite the
names of the Company and the Selling Shareholder in Schedule B hereto. The
obligation of each Underwriter to the Company and to the Selling Shareholder
shall be to purchase from the Company or such Selling Shareholder that number
of Company Shares or Selling Shareholder Shares, as the case may be, which
(as nearly as practicable, as determined by you) is in the same proportion to
the number of Company Shares or Selling Shareholder Shares set forth opposite
the name of the Company or such Selling Shareholder in Schedule B hereto as
the number of Firm Shares which is set forth opposite the name of such
Underwriter in Schedule A hereto (subject to adjustment as provided in
Section 10) is to the total number of Firm Shares to be purchased by all the
Underwriters under this Agreement.
The certificates in negotiable form for the Selling Shareholder
Shares have been placed in custody (for delivery under this Agreement) under
the Custody Agreement. The Selling Shareholder agrees that the certificates
for the Selling Shareholder Shares of such Selling Shareholder so held in
custody are subject to the interests of the Underwriters hereunder, that the
arrangements made by such Selling Shareholder for such custody, including the
Power of Attorney is to that extent irrevocable and that the obligations of
such Selling Shareholder hereunder shall not be terminated by any act of such
Selling Shareholder or by operation of law, whether by the death or
incapacity of such Selling Shareholder or the occurrence of any other event,
except as specifically
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provided herein or in the Custody Agreement. If any Selling Shareholder
should die or be incapacitated, or if any other such event should occur,
before the delivery of the certificates for the Selling Shareholder Shares
hereunder, the Selling Shareholder Shares to be sold by such Selling
Shareholder shall, except as specifically provided herein or in the Custody
Agreement, be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death, incapacity or other event had
not occurred, regardless of whether the Custodian shall have received notice
of such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made
against receipt of a wire transfer reference number issued by the Federal
Reserve System evidencing payment of the purchase price therefor by the
several Underwriters by wire transfer of immediately available funds, to an
account specified in writing by the Company with regard to the Shares being
purchased from the Company, and to an account specified in writing by the
Custodian for the account of the Selling Shareholder with regard to the
Shares being purchased from such Selling Shareholder, at the offices of Gray
Cary Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo Alto, California (or
at such other place as may be agreed upon among the Representatives and the
Company), at 7:00 A.M., San Francisco time (a) on the third (3rd) full
business day following the first day that Shares are traded, (b) if this
Agreement is executed and delivered after 1:30 P.M., San Francisco time, the
fourth (4th) full business day following the day that this Agreement is
executed and delivered or (c) at such other time and date not later than
seven (7) full business days following the first day that Shares are traded
as the Representatives and the Company may determine (or at such time and
date to which payment and delivery shall have been postponed pursuant to
Section 10 hereof), such time and date of payment and delivery being herein
called the "Closing Date;" PROVIDED, HOWEVER, that if the Company has not
made available to the Representatives copies of the Prospectus within the
time provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full
business days following delivery of copies of the Prospectus to the
Representatives. The certificates for the Firm Shares to be so delivered
will be made available to you at such office or such other location
including, without limitation, in New York City, as you may reasonably
request for checking at least one (1) full business day prior to the Closing
Date and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to the Closing
Date. If the Representatives so elect, delivery of the Firm Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior
to the Closing Date for the Firm Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares
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at an initial public offering price of $_____ per share. After the initial
public offering, the several Underwriters may, in their discretion, vary the
public offering price.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), on the inside
front cover concerning stabilization and over-allotment by the Underwriters,
and in the second, seventh and eighth paragraphs under the caption
"Underwriting" in any Preliminary Prospectus and in the Prospectus
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the
Registration Statement , and you, on behalf of the respective Underwriters,
represent and warrant to the Company and the Selling Shareholder that the
statements made therein do not include any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the
time and date that this Agreement is executed and delivered by the parties
hereto, to become effective as promptly as possible; the Company will use its
best efforts to cause any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations as may be required subsequent to the date
the Registration Statement is declared effective to become effective as
promptly as possible; the Company will notify you, promptly after it shall
receive notice thereof, of the time when the Registration Statement, any
subsequent amendment to the Registration Statement or any abbreviated
registration statement has become effective or any supplement to the
Prospectus has been filed; if the Company omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission; if the Company files a term sheet pursuant to Rule 434 of the
Rules and Regulations, the Company will provide evidence satisfactory to you
that the Prospectus and term sheet meeting the requirements of Rule 434(b) or
(c), as applicable, of the Rules and Regulations have been filed, within the
time period prescribed, with the Commission pursuant to subparagraph (7) of
Rule 424(b) of the Rules and Regulations; if for any reason the filing of the
final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the
time period prescribed; it will notify you promptly of any request by the
Commission for the amending or supplementing of the Registration Statement or
the Prospectus or for additional information; promptly upon your request, it
will prepare and file with the Commission any amendments or supplements to
the Registration Statement or Prospectus which, in the opinion of counsel for
the several Underwriters ("Underwriters' Counsel"), may be necessary or
advisable in connection with the distribution of the
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Shares by the Underwriters; it will promptly prepare and file with the
Commission, and promptly notify you of the filing of, any amendments or
supplements to the Registration Statement or Prospectus which may be
necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the Act,
any event shall have occurred as a result of which the Prospectus or any
other prospectus relating to the Shares as then in effect would include any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is
required to deliver a prospectus nine (9) months or more after the effective
date of the Registration Statement in connection with the sale of the Shares,
it will prepare promptly upon request, but at the expense of such
Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act; and it will file no
amendment or supplement to the Registration Statement or Prospectus which
shall not previously have been submitted to you a reasonable time prior to
the proposed filing thereof or to which you shall reasonably object in
writing, subject, however, to compliance with the Act and the Rules and
Regulations and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order
should be issued.
(c) The Company will use its best efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions
as you may designate and to continue such qualifications in effect for so
long as may be required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection therewith or as a
condition thereof to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction in which it is not
otherwise required to be so qualified or to so execute a general consent to
service of process. In each jurisdiction in which the Shares shall have been
qualified as above provided, the Company will make and file such statements
and reports in each year as are or may be required by the laws of such
jurisdiction.
(d) The Company will furnish to you, as soon as available,
and, in the case of the Prospectus and any term sheet or abbreviated term
sheet under Rule 434, in no event later than the first (1st) full business
day following the first day that Shares are traded, copies of the
Registration Statement (three of which will be signed and which will include
all exhibits), each Preliminary Prospectus, the Prospectus and any amendments
or supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, all in such quantities as you
may from time to time reasonably request. Notwithstanding the foregoing, if
BancAmerica Robertson Stephens, on behalf of the several Underwriters, shall
agree to the utilization of Rule 434 of the Rules and Regulations, the
Company shall provide to you copies of a Preliminary Prospectus updated in
all respects through the date specified by you in such quantities as you may
from time to time reasonably request.
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(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first
occurring after the first anniversary of the effective date of the
Registration Statement, an earnings statement (which will be in reasonable
detail but need not be audited) complying with the provisions of Section
11(a) of the Act and covering a twelve (12) month period beginning after the
effective date of the Registration Statement.
(f) During a period of five (5) years after the date hereof,
the Company will furnish to its shareholders as soon as practicable after the
end of each respective period, annual reports (including financial statements
audited by independent certified public accountants) and unaudited quarterly
reports of operations for each of the first three quarters of the fiscal
year, and will furnish to you and the other several Underwriters hereunder,
upon request (i) concurrently with furnishing such reports to its
shareholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's shareholders, (ii)
concurrently with furnishing to its shareholders, a balance sheet of the
Company as of the end of such fiscal year, together with statements of
operations, of shareholders' equity, and of cash flows of the Company for
such fiscal year, accompanied by a copy of the certificate or report thereon
of independent certified public accountants, (iii) as soon as they are
available, copies of all reports (financial or other) mailed to shareholders,
(iv) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, any securities exchange
or the National Association of Securities Dealers, Inc. ("NASD"), (v) every
material press release and every material news item or article in respect of
the Company, its subsidiaries or its or their affairs which was generally
released to shareholders or prepared by the Company or any of its
subsidiaries, and (vi) any additional information of a public nature
concerning the Company or its subsidiaries, or its business which you may
reasonably request. During such five (5) year period, if the Company shall
have active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and such
subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale of
the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company or any Selling Shareholder to perform any agreement on their
respective parts to be performed hereunder or to fulfill any condition of the
Underwriters' obligations hereunder, or if the Company shall terminate this
Agreement pursuant to Section 11(a) hereof, or if the Underwriters shall
terminate this Agreement pursuant to Section 11(b)(i), the Company will
reimburse the several Underwriters for all out-of-pocket expenses (including
fees and disbursements of Underwriters' Counsel) incurred by the Underwriters
in investigating or preparing to market or marketing the Shares.
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(j) The Company will comply with Item 701 of Regulation S-K
as it relates to the Company's Use of Proceeds from the sale of the Shares
being sold by it.
(k) If at any time during the ninety (90) day period after
the Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company
will, after written notice from you advising the Company to the effect set
forth above, forthwith prepare, consult with you concerning the substance of
and disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication
or event.
(l) During the Lock-up Period, the Company will not, without
the prior written consent of BancAmerica Robertson Stephens effect the
Disposition of, directly or indirectly, any Securities other than the sale of
the Firm Shares and the Option Shares hereunder and the Company's issuance of
options or Common Stock under the Company's presently authorized 1998 Stock
Plan (the "Option Plan").
(m) During a period of ninety (90) days from the effective
date of the Registration Statement, the Company will not file a registration
statement registering shares under the Option Plan or other employee benefit
plan.
(n) The Company will maintain the quotation of the Shares on
the Nasdaq National Market and pay all costs, expenses and fees incident to
such maintenance.
5. EXPENSES.
(a) The Company and the Selling Shareholder agree with each
Underwriter that:
(i) The Company and the Selling Shareholder
will pay and bear all costs and expenses in connection with the preparation,
printing and filing of the Registration Statement (including financial
statements, schedules and exhibits), Preliminary Prospectuses and the
Prospectus and any amendments or supplements thereto; the printing of this
Agreement, the Agreement Among Underwriters, the Selected Dealer Agreement,
the Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey, the
Underwriters' Questionnaire and Power of Attorney, and any instruments
related to any of the foregoing; the issuance and delivery of the Shares
hereunder to the several Underwriters, including transfer taxes, if any, the
cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the Company; all
fees and other charges of the Company's independent certified public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary
Prospectus and the Prospectus, and any amendments or supplements to any of
the foregoing; NASD filing fees and the cost of qualifying the Shares under
the laws of such jurisdictions as you may designate (including filing fees
and fees and disbursements
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of Underwriters' Counsel in connection with such NASD filings and Blue Sky
qualifications); and all other expenses directly incurred by the Company and
the Selling Shareholder in connection with the performance of their
obligations hereunder. Any additional expenses incurred as a result of the
sale of the Shares by the Selling Shareholder will be borne collectively by
the Company and the Selling Shareholder. The provisions of this Section
5(a)(i) are intended to relieve the Underwriters from the payment of the
expenses and costs which the Selling Shareholder and the Company hereby agree
to pay, but shall not affect any agreement which the Selling Shareholder and
the Company may make, or may have made, for the sharing of any of such
expenses and costs. Such agreements shall not impair the obligations of the
Company and the Selling Shareholder hereunder to the several Underwriters.
(ii) In addition to its other obligations under
Section 8(a) hereof, the Company agrees that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(a) hereof, it will reimburse the Underwriters on a
monthly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Company's obligation to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) listed
from time to time in The Wall Street Journal which represents the base rate
on corporate loans posted by a substantial majority of the nation's thirty
(30) largest banks (the "Prime Rate"). Any such interim reimbursement
payments which are not made to the Underwriters within thirty (30) days of a
request for reimbursement shall bear interest at the Prime Rate from the date
of such request.
(iii) In addition to their other obligations
under Section 8(b) hereof, the Selling Shareholder agrees that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(b) hereof relating to such Selling
Shareholder, it will reimburse the Underwriters on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other
proceeding, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of such Selling Shareholder's obligation to
reimburse the Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is
so held to have been improper, the Underwriters shall promptly return such
payment to the Selling Shareholder, together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Underwriters within thirty (30) days of a
request for reimbursement shall bear interest at the Prime Rate from the date
of such request.
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(b) In addition to their other obligations under Section 8(c)
hereof, the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(c) hereof, they will reimburse the
Company and the Selling Shareholder on a monthly basis for all reasonable
legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety
and enforceability of the Underwriters' obligation to reimburse the Company
and each such Selling Shareholder for such expenses and the possibility that
such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Company and each such Selling
Shareholder shall promptly return such payment to the Underwriters together
with interest, compounded daily, determined on the basis of the Prime Rate.
Any such interim reimbursement payments which are not made to the Company and
each such Selling Shareholder within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts and the basis
on which such amounts shall be apportioned among the reimbursing parties,
shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock
Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the NASD.
Any such arbitration must be commenced by service of a written demand for
arbitration or a written notice of intention to arbitrate, therein electing
the arbitration tribunal. In the event the party demanding arbitration does
not make such designation of an arbitration tribunal in such demand or
notice, then the party responding to said demand or notice is authorized to
do so. Any such arbitration will be limited to the operation of the interim
reimbursement provisions contained in Sections 5(a)(ii), 5(a)(iii) and 5(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 8(a), 8(b) and 8(c) hereof or the obligation to contribute to
expenses which is created by the provisions of Section 8(e) hereof.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date
and any later date on which Option Shares are to be purchased, as the case
may be, of the representations and warranties of the Company and the Selling
Shareholder herein, to the performance by the Company and the Selling
Shareholder of their respective obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective
not later than 2:00 P.M., San Francisco time, on the date following the date
of this Agreement, or such later date and time as shall be consented to in
writing by you; and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been
initiated or, to the knowledge of the Company, any Selling Shareholder or any
Underwriter,
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threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of
the Shares, shall have been reasonably satisfactory to Underwriters' Counsel,
and such counsel shall have been furnished with such papers and information
as they may reasonably have requested to enable them to pass upon the matters
referred to in this Section.
(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, there shall not have been any
change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered
as one enterprise from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that
makes it, in your sole judgment, impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus; and
(d) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be,
the following opinion of counsel for the Company, dated the Closing Date or
such later date on which Option Shares are to be purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for
each of the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
California;
(ii) The Company has the corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus;
(iii) The Company is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction,
if any, in which the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the
failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company. To such counsel's
knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity;
(iv) The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus under
the caption "Capitalization" as of the dates stated therein, and the
issued and outstanding shares of capital stock
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of the Company (including the Selling Shareholder Shares) have been
duly and validly issued and are fully paid and nonassessable, and,
to such counsel's knowledge, will not have been issued in violation
of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right;
(v) All issued and outstanding shares of capital
stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable, and, to such counsel's knowledge,
have not been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or
other similar right and are owned by the Company free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable
interest;
(vi) The Company Shares to be issued by the
Company pursuant to the terms of this Agreement have been duly
authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and
fully paid and nonassessable, and will not have been issued in
violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right.
(vii) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and deliver
to the Underwriters the Shares to be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by
all necessary corporate action on the part of the Company and has been
duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of the Company, enforceable in accordance with its terms,
except insofar as indemnification provisions may be limited by
applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general
equitable principles;
(ix) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted
or are pending or threatened under the Act;
(x) The Registration Statement and the
Prospectus, and each amendment or supplement thereto (other than the
financial statements (including supporting schedules) and financial
data derived therefrom as to which such counsel need express no
opinion), as of the effective date of the Registration Statement,
complied as to form in all material respects with the requirements of
the Act and the applicable Rules and Regulations;
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(xi) The information in the Prospectus under the
caption "Description of Capital Stock," to the extent that it
constitutes matters of law or legal conclusions, has been reviewed by
such counsel and is a fair summary of such matters and conclusions;
and the forms of certificates evidencing the Common Stock and filed as
exhibits to the Registration Statement comply with California law;
(xii) The description in the Registration Statement
and the Prospectus of the charter and bylaws of the Company and of
statutes are accurate and fairly present the information required to
be presented by the Act and the applicable Rules and Regulations;
(xiii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company is a
party of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to
the Registration Statement which are not described or referred to
therein or filed as required;
(xiv) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than
performance of the Company's indemnification obligations hereunder,
concerning which no opinion need be expressed) will not (a) result in
any violation of the charter or bylaws of the Company or (b) to such
counsel's knowledge, result in a material breach or violation of any
of the terms and provisions of, or constitute a default under, any
bond, debenture, note or other evidence of indebtedness, or any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument known to such counsel to
which the Company is a party or by which its properties are bound, or
any applicable statute, rule or regulation known to such counsel or,
to such counsel's knowledge, any order, writ or decree of any court,
government or governmental agency or body having jurisdiction over the
Company, or over any of its properties or operations;
(xv) No consent, approval, authorization or order
of or qualification with any court, government or governmental agency
or body having jurisdiction over the Company, or over any of its
properties or operations is necessary in connection with the
consummation by the Company of the transactions herein contemplated,
except such as have been obtained under the Act or such as may be
required under state or other securities or Blue Sky laws in
connection with the purchase and the distribution of the Shares by the
Underwriters;
(xvi) To such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against the
Company of a character required to be disclosed in the Registration
Statement or the Prospectus by the Act or the Rules and Regulations,
other than those described therein;
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(xvii) To such counsel's knowledge, the Company is
not presently (a) in material violation of its respective charter or
bylaws, or (b) in material breach of any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any
order, writ or decree of any court or governmental agency or body
having jurisdiction over the Company, or over any of its properties or
operations; and
(xviii) To such counsel's knowledge, except as set
forth in the Registration Statement and Prospectus, no holders of
Common Stock or other securities of the Company have registration
rights with respect to securities of the Company and, except as set
forth in the Registration Statement and Prospectus, all holders of
securities of the Company having rights known to such counsel to
registration of such shares of Common Stock or other securities,
because of the filing of the Registration Statement by the Company
have, with respect to the offering contemplated thereby, waived such
rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the
Registration Statement or have included securities in the Registration
Statement pursuant to the exercise of and in full satisfaction of such
rights; and
(xix) Upon the delivery of and payment for the
Shares as contemplated in this Agreement, each of the Underwriters
will receive valid marketable title to the Shares purchased by it from
such Selling Shareholder, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. In rendering such
opinion, such counsel may assume that the Underwriters are without
notice of any defect in the title of the Shares being purchased from
the Selling Shareholder.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters
were discussed, and although they have not verified the accuracy or
completeness of the statements contained in the Registration Statement or the
Prospectus, nothing has come to the attention of such counsel which leads
such counsel to believe that, at the time the Registration Statement became
effective and at all times subsequent thereto up to and on the Closing Date
and on any later date on which Option Shares are to be purchased, the
Registration Statement and any amendment or supplement thereto (other than
the financial statements including supporting schedules and other financial
and statistical information derived therefrom, as to which such counsel need
express no comment) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or at the Closing Date or any
later date on which the Option Shares are to be purchased, as the case may
be, the Registration Statement, the Prospectus and any amendment or
supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact
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necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to
questions of law not involving the laws of the United States or the State of
California upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Shareholder, and of government officials, in which case their opinion is to
state that they are so relying and that they have no knowledge of any
material misstatement or inaccuracy in any such opinion, representation or
certificate. Copies of any opinion, representation or certificate so relied
upon shall be delivered to you, as Representatives of the Underwriters, and
to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, an
opinion of Wilson Sonsini Goodrich & Rosati, P.C., in form and substance
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the
Company shall have furnished to such counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Company Counsel and the independent certified
public accountants of the Company, at which such conferences the contents of
the Registration Statement and Prospectus and related matters were discussed,
and although they have not verified the accuracy or completeness of the
statements contained in the Registration Statement or the Prospectus, nothing
has come to the attention of such counsel which leads such counsel to believe
that, at the time the Registration Statement became effective and at all
times subsequent thereto up to and on the Closing Date and on any later date
on which Option Shares are to be purchased, the Registration Statement and
any amendment or supplement thereto (other than the financial statements
including supporting schedules and other financial and statistical
information derived therefrom, as to which such counsel need express no
comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the Closing Date or any later date
on which the Option Shares are to be purchased, as the case may be, the
Registration Statement, the Prospectus and any amendment or supplement
thereto (except as aforesaid) contained any untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(f) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
letter from Deloitte & Touche LLP addressed to the Underwriters, dated the
Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations and based upon the procedures
described in the letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried
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out to a date not more than five (5) business days prior to the Closing Date
or such later date on which Option Shares are to be purchased, as the case
may be, (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the Closing
Date or such later date on which Option Shares are to be purchased, as the
case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter that are
necessary to reflect any changes in the facts described in the Original
Letter since its date, or to reflect the availability of more recent
financial statements, data or information. The letter shall not disclose any
change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered
as one enterprise from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that
makes it, in your sole judgment, impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. The
Original Letter from Deloitte & Touche LLP shall be addressed to or for the
use of the Underwriters in form and substance satisfactory to the
Underwriters and shall (i) represent, to the extent true, that they are
independent certified public accountants with respect to the Company within
the meaning of the Act and the applicable published Rules and Regulations,
(ii) set forth their opinion with respect to their examination of the balance
sheet of the Company as of June 30, 1997 and as of March 31, 1998 and related
statements of operations, shareholders' equity, and cash flows for the twelve
(12) months ended June 30, 1997 and the nine months ended March 31, 1998,
(iii) state that Deloitte & Touche LLP has performed the procedures set out
in Statement on Auditing Standards No. 71 ("SAS 71") for a review of interim
financial information and providing the report of Deloitte & Touche LLP as
described in SAS 71 on the financial statements for each of the quarters in
the seven-quarter period ended March 31, 1998 (the "Quarterly Financial
Statements"), (iv) state that in the course of such review, nothing came to
their attention that leads them to believe that any material modifications
need to be made to any of the Quarterly Financial Statements in order for
them to be in compliance with generally accepted accounting principles
consistently applied across the periods presented, and (v) address other
matters agreed upon by Deloitte & Touche LLP and you. In addition, you shall
have received from Deloitte & Touche LLP a letter addressed to the Company
and made available to you for the use of the Underwriters stating that their
review of the Company's system of internal accounting controls, to the extent
they deemed necessary in establishing the scope of their examination of the
Company's financial statements as of June 30, 1997, did not disclose any
weaknesses in internal controls that they considered to be material
weaknesses.
(g) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, signed by the
Chief Executive Officer and Chief Financial Officer of the Company, to the
effect that, and you shall be satisfied that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and as
of the Closing Date or any later date on which Option Shares are to be
purchased, as the case may be, and the Company has complied with all
the agreements and satisfied all the conditions on its
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part to be performed or satisfied at or prior to the Closing Date
or any later date on which Option Shares are to be purchased, as
the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery of
such certificate, the Registration Statement and the Prospectus, and
any amendments or supplements thereto, contained all material
information required to be included therein by the Act and the Rules
and Regulations, and in all material respects conformed to the
requirements of the Act and the Rules and Regulations, the
Registration Statement, and any amendment or supplement thereto, did
not and does not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and does
not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and,
since the effective date of the Registration Statement, there has
occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of
which information is given in the Registration Statement and
Prospectus, there has not been (a) any material adverse change in the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company, (b) any transaction that is
material to the Company, except transactions entered into in the
ordinary course of business, (c) any obligation, direct or contingent,
that is material to the Company, incurred by the Company, except
obligations incurred in the ordinary course of business, (d) any
change in the capital stock or outstanding indebtedness of the Company
that is material to the Company, (e) any dividend or distribution of
any kind declared, paid or made on the capital stock of the Company,
or (f) any loss or damage (whether or not insured) to the property of
the Company which has been sustained or will have been sustained which
has a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of
the Company.
(h) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date, or any later date on which Option Shares
are to be purchased, as the case may be, from the Attorneys for the Selling
Shareholder to the effect that, as of the Closing Date, or any later date on
which Option Shares are to be purchased, as the case may be, they have not been
informed that:
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(i) The representations and warranties made by
such Selling Shareholder herein are not true or correct in any
material respect on the Closing Date or on any later date on which
Option Shares are to be purchased, as the case may be; or
(ii) Such Selling Shareholder has not complied
with any obligation or satisfied any condition which is required to be
performed or satisfied on the part of such Selling Shareholder at or
prior to the Closing Date or any later date on which Option Shares are
to be purchased, as the case may be.
(i) The Company shall have obtained and delivered to you an
agreement from each officer and director of the Company, the Selling
Shareholder and each beneficial owner of Common Stock in writing prior to the
date hereof that such person will not, during the Lock-up Period, effect the
Disposition of any Securities now owned or hereafter acquired directly by
such person or with respect to which such person has or hereafter acquires
the power of disposition, otherwise than (i) as a bona fide gift or gifts,
provided the donee or donees thereof agree in writing to be bound by this
restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound
by the terms of this restriction, or (iii) with the prior written consent of
BancAmerica Robertson Stephens. The foregoing restriction shall have been
expressly agreed to preclude the holder of the Securities from engaging in
any hedging or other transaction which is designed to or reasonably expected
to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than
the such holder. Such prohibited hedging or other transactions would
include, without limitation, any short sale (whether or not against the box)
or any purchase, sale or grant of any right (including, without limitation,
any put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from the Securities.
Furthermore, such person will have also agreed and consented to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction.
(j) The Company and the Selling Shareholder shall have
furnished to you such further certificates and documents as you shall
reasonably request (including certificates of officers of the Company or the
Selling Shareholder) as to the accuracy of the representations and warranties
of the Company and the Selling Shareholder herein, as to the performance by
the Company and the Selling Shareholder of their respective obligations
hereunder and as to the other conditions concurrent and precedent to the
obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company and the Selling
Shareholder will furnish you with such number of conformed copies of such
opinions, certificates, letters and documents as you shall reasonably request.
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7. OPTION SHARES.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein
set forth, the Selling Shareholder hereby grants to the several Underwriters,
for the purpose of covering over-allotments in connection with the
distribution and sale of the Firm Shares only, a nontransferable option to
purchase up to an aggregate of 375,000 Option Shares at the purchase price
per share for the Firm Shares set forth in Section 3 hereof. Such option may
be exercised by the Representatives on behalf of the several Underwriters on
one (1) or more occasions in whole or in part during the period of thirty
(30) days after the date on which the Firm Shares are initially offered to
the public, by giving written notice to the Selling Shareholder. The number
of Option Shares to be purchased by each Underwriter upon the exercise of
such option shall be the same proportion of the total number of Option Shares
to be purchased by the several Underwriters pursuant to the exercise of such
option as the number of Firm Shares purchased by such Underwriter (set forth
in Schedule A hereto) bears to the total number of Firm Shares purchased by
the several Underwriters (set forth in Schedule A hereto), adjusted by the
Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to
be purchased by the several Underwriters pursuant to the exercise of the
option granted by this Section 7 shall be made against receipt of a wire
transfer reference number issued by the Federal Reserve System evidencing
payment of the purchase price therefor by the several Underwriters by wire
transfer of immediately available funds to an account specified in writing by
the Selling Shareholder. Such delivery and payment shall take place at the
offices of Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo Alto,
California or at such other place as may be agreed upon among the
Representatives and the Selling Shareholder (i) on the Closing Date, if
written notice of the exercise of such option is received by the Selling
Shareholder at least two (2) full business days prior to the Closing Date, or
(ii) on a date which shall not be later than the third (3rd) full business
day following the date the Selling Shareholder receives written notice of the
exercise of such option, if such notice is received by the Company less than
two (2) full business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will
be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for
checking at least one (1) full business day prior to the date of payment and
delivery and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to such date of
payment and delivery. If the Representatives so elect, delivery of the
Option Shares may be made by credit through full fast transfer to the
accounts at The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior
to the date of payment and delivery for the Option Shares to be purchased by
such Underwriter or Underwriters. Any such payment by you shall not relieve
any such Underwriter or Underwriters of any of its or their obligations
hereunder.
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(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment
and delivery for such Option Shares) to the accuracy of and compliance with
the representations, warranties and agreements of the Company and the Selling
Shareholder herein, to the accuracy of the statements of the Company, the
Selling Shareholder and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Shareholder of their respective obligations hereunder, to the conditions set
forth in Section 6 hereof, and to the condition that all proceedings taken at
or prior to the payment date in connection with the sale and transfer of such
Option Shares shall be satisfactory in form and substance to you and to
Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may request in order to evidence
the accuracy and completeness of any of the representations, warranties or
statements, the performance of any of the covenants or agreements of the
Company and the Selling Shareholder or the satisfaction of any of the
conditions herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Selling Shareholder, jointly and
severally, agree to indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject (including, without limitation, in its
capacity as an Underwriter or as a "qualified independent underwriter" within
the meaning of Rule 2720 of the Conduct Rules of the NASD), under the Act,
the Exchange Act or otherwise, specifically including, but not limited to,
losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of the Company or Selling Shareholder herein contained,
(ii) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or
any amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, and agrees to reimburse each Underwriter for
any legal or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the Company and the Selling Shareholder shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity
with, written information relating to any Underwriter furnished to the
Company by such Underwriter, directly or through you, specifically for use in
the preparation thereof and, PROVIDED FURTHER, that the indemnity agreement
provided in this Section 8(a) with respect to any Preliminary Prospectus
shall not inure to the benefit of any Underwriter from whom the person
asserting any losses, claims, damages, liabilities or actions based upon any
untrue statement or alleged untrue statement of material fact or omission or
alleged
-29-
<PAGE>
omission to state therein a material fact purchased Shares, if a copy of the
Prospectus in which such untrue statement or alleged untrue statement or
omission or alleged omission was corrected had not been sent or given to such
person within the time required by the Act and the Rules and Regulations,
unless such failure is the result of noncompliance by the Company with
Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company and the Selling Shareholder against
any losses, claims, damages or liabilities, joint or several, to which the
Company or the Selling Shareholder may become subject under the Act or
otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities (or actions in respect thereof) arising out of or
based upon (i) any breach of any representation, warranty, agreement or
covenant of such Underwriter herein contained, (ii) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in the case of subparagraphs (ii)
and (iii) of this Section 8(b) to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Underwriter, directly or through you,
specifically for use in the preparation thereof, and agrees to reimburse the
Company and the Selling Shareholder for any legal or other expenses
reasonably incurred by the Company and the Selling Shareholder in connection
with investigating or defending any such loss, claim, damage, liability or
action.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer
of the Company who signed the Registration Statement and each director of the
Company, the Selling Shareholder and each person, if any, who controls the
Company within the meaning of the Act or the Exchange Act. This indemnity
agreement shall be in addition to any liabilities which each Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under this Section 8. In case any such action is
brought against any indemnified party, and it notified the
-30-
<PAGE>
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
PROVIDED, HOWEVER, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal defenses
and to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that
the indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section
8(a) or 8(b) hereof who are parties to such action), (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the
indemnifying party shall have approved the terms of such settlement; PROVIDED
that such consent shall not be unreasonably withheld. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all
liability on all claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution
in any action in which a claim for indemnification is made pursuant to this
Section 8 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification
may not be enforced in such case notwithstanding the fact that this Section 8
provides for indemnification in such case, all the parties hereto shall
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so
that, except as set forth in Section 8(e) hereof, the Underwriters severally
and not jointly are responsible pro rata for the portion represented by the
percentage that the underwriting discount bears to the initial public
offering price, and the Company and the Selling Shareholder are responsible
for the remaining portion, PROVIDED, HOWEVER, that (i) no Underwriter shall
be required to contribute any amount in excess of the amount by which the
underwriting discount applicable to the Shares purchased by such Underwriter
exceeds the amount of damages which such Underwriter has been otherwise
required
-31-
<PAGE>
to pay and (ii) no person guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who is not guilty of such fraudulent misrepresentation. The
contribution agreement in this Section 8(d) shall extend upon the same terms
and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Underwriter, the Company within the meaning of the Act or
the Exchange Act and each officer of the Company who signed the Registration
Statement and each director of the Company.
(e) The liability of the Selling Shareholder under the
representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the initial public offering price of the
Selling Shareholder Shares and Option Shares sold by the Selling Shareholder
to the Underwriters minus the amount of the underwriting discount paid
thereon to the Underwriters by the Selling Shareholder. The Company and the
Selling Shareholder may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to the respective amounts
of such liability for which they each shall be responsible.
(f) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel
during the negotiations regarding the provisions hereof including, without
limitation, the provisions of this Section 8, and are fully informed
regarding said provisions. They further acknowledge that the provisions of
this Section 8 fairly allocate the risks in light of the ability of the
parties to investigate the Company and its business in order to assure that
adequate disclosure is made in the Registration Statement and Prospectus as
required by the Act and the Exchange Act.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company, the Selling Shareholder and the Underwriters herein or in
certificates delivered pursuant hereto, and the indemnity and contribution
agreements contained in Section 8 hereof shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter within the meaning of
the Act or the Exchange Act, or by or on behalf of the Company or any Selling
Shareholder, or any of their officers, directors or controlling persons
within the meaning of the Act or the Exchange Act, and shall survive the
delivery of the Shares to the several Underwriters hereunder or termination
of this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such
Firm Shares in accordance with the terms hereof, and if the aggregate number
of Firm Shares which such defaulting Underwriter or Underwriters so agreed
but failed to purchase does not exceed 10% of the Firm Shares, the remaining
Underwriters shall be obligated, severally in proportion to their respective
commitments hereunder, to take up and pay for the Firm Shares of such
defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters
agreed but failed to take up and pay for
-32-
<PAGE>
exceeds 10% of the Firm Shares, the remaining Underwriters shall have the
right, but shall not be obligated, to take up and pay for (in such
proportions as may be agreed upon among them) the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If
such remaining Underwriters do not, at the Closing Date, take up and pay for
the Firm Shares which the defaulting Underwriter or Underwriters so agreed
but failed to purchase, the Closing Date shall be postponed for twenty-four
(24) hours to allow the several Underwriters the privilege of substituting
within twenty-four (24) hours (including non-business hours) another
underwriter or underwriters (which may include any nondefaulting Underwriter)
satisfactory to the Company. If no such underwriter or underwriters shall
have been substituted as aforesaid by such postponed Closing Date, the
Closing Date may, at the option of the Company, be postponed for a further
twenty-four (24) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed
but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted underwriter or underwriters to take up the Firm
Shares of the defaulting Underwriter or Underwriters as provided in this
Section 10, (i) the Company shall have the right to postpone the time of
delivery for a period of not more than seven (7) full business days, in order
to effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and
the Company agrees promptly to file any amendments to the Registration
Statement, supplements to the Prospectus or other such documents which may
thereby be made necessary, and (ii) the respective number of Firm Shares to
be purchased by the remaining Underwriters and substituted underwriter or
underwriters shall be taken as the basis of their underwriting obligation.
If the remaining Underwriters shall not take up and pay for all such Firm
Shares so agreed to be purchased by the defaulting Underwriter or
Underwriters or substitute another underwriter or underwriters as aforesaid
and the Company shall not find or shall not elect to seek another underwriter
or underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor the Selling
Shareholder shall not be liable to any Underwriter (except as provided in
Sections 5 and 8 hereof) nor shall any Underwriter (other than an Underwriter
who shall have failed, otherwise than for some reason permitted under this
Agreement, to purchase the number of Firm Shares agreed by such Underwriter
to be purchased hereunder, which Underwriter shall remain liable to the
Company, the Selling Shareholder and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company or the Selling
Shareholder (except to the extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of
(i) 6:30 A.M., San Francisco time, on the first full business day following
the effective date of the Registration Statement, or (ii) the time of the
initial public offering of any of the Shares by the Underwriters after
-33-
<PAGE>
the Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which
the Shares are first generally offered by the Underwriters to the public by
letter, telephone, telegram or telecopy, whichever shall first occur. By
giving notice as set forth in Section 12 before the time this Agreement
becomes effective, you, as Representatives of the several Underwriters, or
the Company, may prevent this Agreement from becoming effective without
liability of any party to any other party, except as provided in Sections
4(i), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as
hereinafter specified at any time on or prior to the Closing Date or on or
prior to any later date on which Option Shares are to be purchased, as the
case may be, (i) if the Company or the Selling Shareholder shall have failed,
refused or been unable to perform any agreement on its part to be performed,
or because any other condition of the Underwriters' obligations hereunder
required to be fulfilled is not fulfilled, including, without limitation, any
change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered
as one enterprise from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse, or (ii) if
additional material governmental restrictions, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New
York Stock Exchange or on the American Stock Exchange or in the over the
counter market by the NASD, or trading in securities generally shall have
been suspended on either such exchange or in the over the counter market by
the NASD, or if a banking moratorium shall have been declared by federal, New
York or California authorities, or (iii) if the Company or any of its
subsidiaries shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as to interfere materially with
the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured, or (iv) if there shall have
been a material adverse change in the general political or economic
conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery
of the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration
by the United States of a national emergency which, in the reasonable opinion
of the Representatives, makes it impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. In the
event of termination pursuant to subparagraph (i) above, the Company and the
Selling Shareholder shall remain obligated to pay costs and expenses pursuant
to Sections 4(i), 5 and 8 hereof. Any termination pursuant to any of
subparagraphs (ii) through (v) above shall be without liability of any party
to any other party except as provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement
from becoming effective, the Company shall promptly notify you by telephone,
telecopy or telegram, in each case, confirmed by letter.
-34-
<PAGE>
12. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall
be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to you c/o BancAmerica Robertson Stephens, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company,
such notice shall be mailed, delivered, telegraphed (and confirmed by letter)
or telecopied (and confirmed by letter) to 380 Valley Drive, Brisbane,
California 94005, telecopier number (415)715-3939, Attention: Chief
Financial Officer, Chief Executive Officer.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and the Selling
Shareholder and their respective executors, administrators, successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person or entity, other than the parties
hereto and their respective executors, administrators, successors and
assigns, and the controlling persons within the meaning of the Act or the
Exchange Act, officers and directors referred to in Section 8 hereof, any
legal or equitable right, remedy or claim in respect of this Agreement or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of
the parties hereto and their respective executors, administrators, successors
and assigns and said controlling persons and said officers and directors, and
for the benefit of no other person or entity. No purchaser of any of the
Shares from any Underwriter shall be construed a successor or assign by
reason merely of such purchase.
In all dealings with the Company and the Selling Shareholder under
this Agreement, you shall act on behalf of each of the several Underwriters,
and the Company and the Selling Shareholder shall be entitled to act and rely
upon any statement, request, notice or agreement made or given by you jointly
or by BancAmerica Robertson Stephens on behalf of you.
14. APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
15. COUNTERPARTS. This Agreement may be signed in several
counterparts, each of which will constitute an original.
-35-
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company, the Selling Shareholder and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling
Shareholder and the several Underwriters.
Very truly yours,
BEBE STORES, INC.
By
-------------------------------------
Selling Shareholder
By
-------------------------------------
Attorney-in-Fact for the Selling
Shareholder named in Schedule B hereto
Accepted as of the date first above written:
BANCAMERICA ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By BANCAMERICA ROBERTSON STEPHENS
By
--------------------------------
Authorized Signatory
-36-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
---------------------- -----------
<S> <C>
BancAmerica Robertson Stephens . . . . . . . . . . .
Bear, Stearns & Co. Inc. . . . . . . . . . . . . . .
[NAMES OF OTHER UNDERWRITERS]
</TABLE>
-----------
Total . . . . . . . . . . . . . . . . . . . . . 2,500,000
-----------
-----------
-1-
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Company
Shares To
Company Be Sold
----------------- ---------
<S> <C>
bebe stores, inc. . . . . . . . . . . . . . . . . . 1,250,000
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
Number of
Selling
Shareholder
Shares
Name of Selling Shareholder To Be Sold
------------------------------- -----------
<S> <C>
Manny Mashouf . . . . . . . . . . . . . . . . . . . . 1,250,000
---------------
---------------
</TABLE>
-1-
<PAGE>
CERTIFICATE OF CORRECTION
OF THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
bebe stores, inc.
Manny Mashouf and Paul Mashouf certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of bebe stores, inc., a California corporation (the
"Corporation").
2. The instrument being corrected is entitled "AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF BABE, INC." ("Amended and Restated
Articles") and said instrument was filed with the California Secretary
of State on April 9, 1998.
A. ARTICLE III., paragraph one, of said Amended and Restated Articles
reads in full as follows:
This Corporation is authorized to issue two classes of shares,
designated "Common Stock" and "Preferred Stock." The total number of
shares which this Corporation is authorized to issue is 41,000,000. The
number of shares of Preferred Stock which this Corporation is authorized
to issue is 1,000,000. The number of shares of Common Stock which this
Corporation is authorized to issue is 40,000,000. Upon the filing of
this Certificate of Amendment of Articles of Incorporation, each
outstanding share of Common Stock shall, without any further action on
the part of the Corporation, be split up and converted into 2.83 fully
paid and validly issued shares of Common Stock.
B. ARTICLE III., paragraph one, of said Amended and Restated Articles,
as corrected, should read in full as follows:
This Corporation is authorized to issue two classes of shares,
designated "Common Stock" with a par value of $0.001 per share and
"Preferred Stock" with a par value of $0.001 per share. The total
number of shares which this Corporation is authorized to issue is
41,000,000. The number of shares of Preferred Stock which this
Corporation is authorized to issue is 1,000,000. The number of shares
of Common Stock which this Corporation is authorized to issue is
40,000,000. Upon the filing of this Certificate of Amendment of
Articles of Incorporation, each outstanding share of Common Stock shall,
without any further action on the part of the Corporation, be split up
and converted into 2.83 fully paid and validly issued shares of Common
Stock.
3. This Certificate of Correction does not alter the wording of any
resolution or written consent which was in fact adopted by the Board of
Directors and shareholders.
1
<PAGE>
Each of the undersigned declares under penalty of perjury under the laws
of the State of California that the matters set forth in this Certificate are
true and correct of his own knowledge.
Date: April 30, 1998
---
/s/ Manny Mashouf
------------------------------
Manny Mashouf, President
/s/ Paul Mashouf
------------------------------
Paul Mashouf, Secretary
2
<PAGE>
BYLAWS
OF
bebe stores, inc.
<PAGE>
I N D E X
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
ARTICLE I
OFFICES
1.1 Principal Executive Office. . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . 1
2.4 Limitation on Business at Special Meeting . . . . . . . . . . . . . 2
2.5 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Voting and Proxies. . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7 Inspectors of Election. . . . . . . . . . . . . . . . . . . . . . . 3
2.8 Conduct of the Shareholders' Meeting. . . . . . . . . . . . . . . . 3
2.9 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . 3
2.10 Notice of Shareholder Business.. . . . . . . . . . . . . . . . . . 3
2.11 Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . 4
2.12 Stock List . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
DIRECTORS
3.1 Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Election and Term of Office . . . . . . . . . . . . . . . . . . . . 5
3.4 Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.6 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.7 Organization Meeting. . . . . . . . . . . . . . . . . . . . . . . . 6
3.8 Other Regular Meetings. . . . . . . . . . . . . . . . . . . . . . . 6
3.9 Calling Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.10 Place of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . 7
3.11 Telephonic Meetings. . . . . . . . . . . . . . . . . . . . . . . . 7
3.12 Notice of Special Meetings . . . . . . . . . . . . . . . . . . . . 7
3.13 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.14 Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . 8
3.15 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.16 Adjournment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
i
<PAGE>
<CAPTION>
<S> <C>
3.17 Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . . . 8
3.18 Fees and Compensation. . . . . . . . . . . . . . . . . . . . . . . 8
3.19 Loans to Officers. . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
4.1 Executive Committee.. . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Other Committees. . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.3 Minutes and Reports . . . . . . . . . . . . . . . . . . . . . . . . 9
4.4 Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.5 Term of Office of Committee Members . . . . . . . . . . . . . . . . 10
ARTICLE V
OFFICERS
5.1 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Election. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 Subordinate Officers, etc . . . . . . . . . . . . . . . . . . . . . 10
5.4 Removal and Resignation . . . . . . . . . . . . . . . . . . . . . . 11
5.5 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.6 Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . 11
5.7 President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.8 Vice President. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.9 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.10 Treasurer and Chief Financial Officer. . . . . . . . . . . . . . . 12
5.11 Assistant Secretary. . . . . . . . . . . . . . . . . . . . . . . . 12
5.12 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI
MISCELLANEOUS
6.1 Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.2 Inspection of Corporate Records . . . . . . . . . . . . . . . . . . 13
6.3 Execution of Corporate Instruments. . . . . . . . . . . . . . . . . 14
6.4 Ratification by Shareholders. . . . . . . . . . . . . . . . . . . . 14
6.5 Representation of Shares of Other Corporations. . . . . . . . . . . 14
6.6 Inspection of Bylaws. . . . . . . . . . . . . . . . . . . . . . . . 14
6.7 Facsimile Signatures. . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VII
SHARES OF STOCK
7.1 Form of Certificates. . . . . . . . . . . . . . . . . . . . . . . . 15
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<CAPTION>
<S> <C>
7.2 Transfer of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 15
7.3 Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Corporation. . . . . . . . . . . . . . . . . . . 15
8.2 Right of Claimant to Bring Suit . . . . . . . . . . . . . . . . . . 16
8.3 Indemnification of Employees and Agents of the Corporation. . . . . 17
8.4 Rights Not Exclusive. . . . . . . . . . . . . . . . . . . . . . . . 17
8.5 Indemnity Agreements. . . . . . . . . . . . . . . . . . . . . . . . 17
8.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.7 Amendment, Repeal or Modification . . . . . . . . . . . . . . . . . 17
ARTICLE IX
AMENDMENTS
9.1 Power of Shareholders . . . . . . . . . . . . . . . . . . . . . . . 18
9.2 Power of Directors. . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
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BYLAWS
OF
bebe stores, inc.
ARTICLE I
OFFICES
SECTION 1.1 PRINCIPAL EXECUTIVE OFFICE.
The principal executive office for the transaction of the business of
bebe stores, inc. (the "Corporation") is hereby fixed and located at 380
Valley Drive, Brisbane, California 94005, County of San Mateo, State of
California. The Board of Directors is hereby granted full power and authority
to change said principal office from one location to another.
SECTION 1.2 OTHER OFFICES.
Branch or subordinate offices may at any time be established by the
Board of Directors at any place or places where the corporation is qualified
to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 2.1 ANNUAL MEETING.
An annual meeting of the shareholders, for the election of
directors to succeed those whose terms expire and for the transaction of such
other business as may properly come before the meeting, shall be held at such
place, on such date and at such time as the Board shall each year fix, which
date shall be within thirteen months of the last annual meeting of
shareholders.
SECTION 2.2 SPECIAL MEETING.
Special meetings of the shareholders may be called at any time by
the Board of Directors, the Chairman of the Board, the President, or by the
holders of shares entitled to cast not less than ten percent (10%) of the
votes at the meeting. Notice of such special meeting shall be given in the
same manner as for the annual meeting of shareholders.
SECTION 2.3 NOTICE OF MEETINGS.
Written notice of the place, date and time of all meetings of the
shareholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each shareholder
entitled to vote at such meeting, and to each shareholder not entitled to
vote who is entitled by statute to notice, except as otherwise provided
herein or required by law
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(meaning, here and hereinafter, as required from time to time by the
California General Corporation Law or the Articles of Incorporation (the
"Articles") of the corporation). In the case of a special meeting, such
notice shall include the purpose or purposes for which the meeting is called.
Notice shall be given either by mail or by presenting it to the shareholder
personally or by leaving it at his residence or usual place of business. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail addressed to the shareholder at his post-office address as it
appears on the records of the corporation, with postage thereon prepaid.
SECTION 2.4 LIMITATION ON BUSINESS AT SPECIAL MEETINGS.
Business transacted at any special meeting of shareholders shall be
limited to the purposes stated in the notice.
SECTION 2.5 QUORUM.
At any meeting of the shareholders, the holders of a majority of
all the issued and outstanding shares of the capital stock of the corporation
entitled to vote at the meeting, present in person or represented by proxy,
shall constitute a quorum for the transaction of business at such meeting,
unless or to the extent that the presence of a larger number may be required
by the Articles or by law. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn
the meeting to another place, date or time.
SECTION 2.6 VOTING AND PROXIES.
A majority of the votes cast at a meeting of shareholders, duly
called and at which a quorum is present, shall be sufficient to take or
authorize action upon any matter which may properly come before the meeting,
unless more than a majority of the votes cast is required by statute, by
these Bylaws or by the Articles. Unless otherwise provided by statute or in
the Articles, each shareholder shall, at every meeting of the shareholders,
be entitled to one vote in person or by proxy for each share of the capital
stock having voting power held by such shareholder, but no proxy shall be
voted on after three years from its date, unless the proxy provides for a
longer period.
At any meeting of the shareholders, every shareholder entitled to
vote may vote in person or by proxy authorized by an instrument in writing or
by a transmission permitted by law filed in accordance with the procedure
established for the meeting. No shareholder may authorize more than one
proxy for his shares.
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SECTION 2.7 INSPECTORS OF ELECTION.
The Board or, if the Board shall not have made the appointment, the
chairman presiding at any meeting of shareholders, shall have power to
appoint one or more persons to act as inspectors of election at the meeting
or any adjournment thereof, but no candidate for the office of director shall
be appointed as an inspector at any meeting for the election of directors.
SECTION 2.8 CONDUCT OF THE SHAREHOLDERS' MEETING.
At every meeting of the shareholders, the Chairman, if there is
such an officer, or if not, the President of the corporation, or in his
absence the Vice President designated by the President, or in the absence of
such designation any Vice President, or in the absence of the President or
any Vice President, a chairman chosen by the majority of the voting shares
represented in person or by proxy, shall act as Chairman. The Secretary of
the corporation or a person designated by the Chairman shall act as Secretary
of the meeting. Unless otherwise approved by the Chairman, attendance at the
shareholders' meeting is restricted to shareholders of record, persons
authorized in accordance with Section 0 of these Bylaws to act by proxy and
officers of the corporation.
SECTION 2.9 CONDUCT OF BUSINESS.
The Chairman shall call the meeting to order, establish the agenda
and conduct the business of the meeting in accordance therewith or, at the
Chairman's discretion, it may be conducted otherwise in accordance with the
wishes of the shareholders in attendance. The date and time of the opening
and closing of the polls for each matter upon which the shareholders will
vote at the meeting shall be announced at the meeting.
The Chairman shall also conduct the meeting in an orderly manner,
rule on the precedence of and procedure on, motions and other procedural
matters, and exercise discretion with respect to such procedural matters with
fairness and good faith toward all those entitled to take part. The Chairman
may impose reasonable limits on the amount of time taken up at the meeting on
discussion in general or on remarks by any one shareholder. Should any
person in attendance become unruly or obstruct the meeting proceedings, the
Chairman shall have the power to have such person removed from participation.
Notwithstanding anything in the Bylaws to the contrary, no business shall be
conducted at a meeting except in accordance with the procedures set forth in
this Section 0 and Section 0, below. The Chairman of a meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this Section 0 and Section 0, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
SECTION 2.10 NOTICE OF SHAREHOLDER BUSINESS.
At an annual or special meeting of the shareholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before a meeting, business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) properly brought before the
meeting by or at the
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direction of the Board of Directors, (c) properly brought before an annual
meeting by a shareholder or (d) properly brought before a special meeting by
a shareholder, but if, and only if, the notice of a special meeting provides
for business to be brought before the meeting by shareholders. For business
to be properly brought before a meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the Secretary of the
corporation. To be timely, a shareholder proposal to be presented at an
annual meeting shall be received at the corporation's principal executive
offices not less than 120 calendar days in advance of the date that the
corporation's (or the corporation's predecessor's) proxy statement was
released to shareholders in connection with the previous year's annual
meeting of shareholders, except that if no annual meeting was held in the
previous year or the date of the annual meeting has been changed by more than
30 calendar days from the date contemplated at the time of the previous
year's proxy statement, or in the event of a special meeting, notice by the
shareholder to be timely must be received not later than the close of
business on the tenth day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was made. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual or special meeting (a) a
brief description of the business desired to be brought before the annual or
special meeting and the reasons for conducting such business at the special
meeting, (b) the name and address, as they appear on the corporation's books,
of the shareholder proposing such business, (c) the class and number of
shares of the corporation which are beneficially owned by the shareholder and
(d) any material interest of the shareholder in such business.
SECTION 2.11 ACTION WITHOUT MEETING.
An action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the actions so taken, is signed by the
holders of outstanding shares having not less than the minimum number of
votes which would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted. All
such consents shall be filed with the Secretary of the Corporation and shall
be maintained in the corporate records. Prompt notice of the taking of a
corporate action without a meeting by less than unanimous written consent
shall be given to those shareholders who have not consented in writing.
SECTION 2.12 STOCK LIST.
A complete list of shareholders entitled to vote at any meeting of
shareholders, arranged in alphabetical order for each class of stock and
showing the address of each such shareholder and the number of shares
registered in his name, shall be open to the examination of any such
shareholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at
a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such shareholder
who is present. This list shall
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presumptively determine the identity of the shareholders entitled to vote at
the meeting and the number of shares held by each of them.
ARTICLE III
DIRECTORS
SECTION 3.1 POWERS.
Subject to the limitations stated in the Articles of Incorporation,
these Bylaws, and the California General Corporation Law as to actions which
shall be approved by the shareholders or by the affirmative vote of a
majority of the outstanding shares entitled to vote, and subject to the
duties of Directors as prescribed by the California General Corporation Law,
all corporate powers shall be exercised by, or under the direction of, and
the business and affairs of the corporation shall be managed by, the Board of
Directors.
SECTION 3.2 NUMBER OF DIRECTORS.
The authorized number of Directors of the corporation shall not be
less than five (5), nor more than nine (9), with the exact number of
Directors to be fixed from time to time within such limit by a duly adopted
resolution of the Board of Directors or the Shareholders. The exact number
of Directors shall be five (5) until changed within the limits specified
above by a duly adopted resolution of the Board of Directors or Shareholders.
SECTION 3.3 ELECTION AND TERM OF OFFICE.
The Directors shall be elected at each annual meeting of shareholders,
but if any such annual meeting is not held, or the Directors are not elected
thereat, the Directors may be elected at any special meeting of the
shareholders held for that purpose. All Directors shall hold office until
the expiration of the term for which elected and until their respective
successors are elected, except in the case of the death, resignation or
removal of any Director. A Director need not be a shareholder.
SECTION 3.4 RESIGNATION.
Any Director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary or the Board of Directors
of the corporation, unless the notice specifies a later time for the
effectiveness of such resignation. If the resignation is effective at a
future time, a successor may be elected to take office when the resignation
becomes effective.
SECTION 3.5 REMOVAL.
The entire Board of Directors or any individual Director may be removed
from office, prior to the expiration of their or his term of office only in
the manner and within the limitations provided by the California General
Corporation Law.
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No reduction of the authorized number of Directors shall have the effect
of removing any Director prior to the expiration of such Director's term of
office.
SECTION 3.6 VACANCIES.
A vacancy in the Board of Directors shall be deemed to exist in case of
the death, resignation or removal of any Director, or if the authorized
number of Directors be increased, or if the shareholders fail at any annual
or special meeting of shareholders at which any Director or Directors are
elected to elect the full authorized number of Directors to be voted for at
that meeting.
Vacancies in the Board of Directors may be filled by a majority of the
Directors then in office, whether or not less than a quorum, or by a sole
remaining Director. Each Director so elected shall hold office until the
expiration of the term for which he was elected and until his successor is
elected at an annual or a special meeting of the shareholders, or until his
death, resignation or removal.
The shareholders may elect a Director or Directors at any time to fill
any vacancy or vacancies not filled by the Directors. Any such election by
written consent other than to fill a vacancy created by removal requires the
consent of a majority of the outstanding shares entitled to vote. A Director
may not be elected by written consent to fill a vacancy created by removal
except by unanimous written consent of all shares entitled to vote for the
election of directors.
SECTION 3.7 ORGANIZATION MEETING.
Immediately after each annual meeting of shareholders, the Board of
Directors shall hold a regular meeting for the purpose of organization, the
election of officers and the transaction of other business. No notice of
such meeting need be given.
SECTION 3.8 OTHER REGULAR MEETINGS.
The Board of Directors may provide by resolution the time and place for
the holding of regular meetings of the Board; provided, however, that if the
date so designated falls upon a legal holiday, then the meeting shall be held
at the same time and place on the next succeeding day which is not a legal
holiday. No notice of such regular meetings of the Board need be given.
SECTION 3.9 CALLING MEETINGS.
Meetings of the Board of Directors for any purpose or purposes shall be
held whenever called by the Chairman of the Board, the President or the
Secretary or any two Directors of the corporation.
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SECTION 3.10 PLACE OF MEETINGS.
Meetings of the Board of Directors shall be held at any place within or
without the State of California which may be designated in the notice of the
meeting, or, if not stated in the notice or there is no notice, designated by
resolution of the Board. In the absence of such designation, meetings of the
Board of Directors shall be held at the principal executive office of the
corporation.
SECTION 3.11 TELEPHONIC MEETINGS.
Members of the Board may participate in a regular or special meeting
through use of conference telephone or similar communications equipment, so
long as all members participating in such meeting can hear one another.
Participation in a meeting pursuant to this Section 3.11 constitutes presence
in person at such meeting.
SECTION 3.12 NOTICE OF SPECIAL MEETINGS.
Written notice of the time and place of special meetings of the Board of
Directors shall be delivered personally to each Director, or sent to each
Director by mail, telephone or telegraph. In case such notice is sent by
mail, it shall be deposited in the United States mail at least four (4) days
prior to the time of the holding of the meeting. In case such notice is
delivered personally, or by telephone or telegraph, it shall be so delivered
at least forty-eight (48) hours prior to the time of the holding of the
meeting. Such notice may be given by the Secretary of the corporation or by
the persons who called said meeting. Such notice need not specify the
purpose of the meeting, and notice shall not be necessary if appropriate
waivers, consents and/or approvals are filed in accordance with Section 3.13
of these Bylaws.
SECTION 3.13 WAIVER OF NOTICE.
Notice of a meeting need not be given to any Director who signs a waiver
of notice, whether before or after the meeting, or who attends the meeting
without protesting, prior thereto or at its commencement, the lack of notice
to such Director.
The transactions of any meeting of the Board of Directors, however
called and noticed or wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice if a quorum is present and
if, either before or after the meeting, each of the Directors not present
signs a written waiver of notice, a consent to holding the meeting or an
approval of the minutes thereof. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of
the meeting.
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SECTION 3.14 ACTION WITHOUT MEETING.
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting, if all members of the Board shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board. Such action by written consent shall have the same force and effect
as a unanimous vote of such Directors.
SECTION 3.15 QUORUM.
A majority of the authorized number of Directors shall constitute a
quorum for the transaction of business. Every act or decision done or made
by a majority of the Directors present at a meeting duly held at which a
quorum is present shall be the act of the Board of Directors, unless the
Articles of Incorporation, or the California General Corporation Law,
specifically requires a greater number. In the absence of a quorum at any
meeting of the Board of Directors, a majority of the Directors present may
adjourn the meeting as provided in Section 3.16 of these Bylaws. A meeting
at which a quorum is initially present may continue to transact business,
notwithstanding the withdrawal of enough Directors to leave less than a
quorum, if any action taken is approved by at least a majority of the
required quorum for such meeting.
SECTION 3.16 ADJOURNMENT.
Any meeting of the Board of Directors, whether or not a quorum is
present, may be adjourned to another time and place by the vote of a majority
of the Directors present. Notice of the time and place of the adjourned
meeting need not be given to absent Directors if said time and place are
fixed at the meeting adjourned.
SECTION 3.17 INSPECTION RIGHTS.
Every Director shall have the absolute right at any time to inspect,
copy and make extra copies of, in person or by agent or attorney, all books,
records and documents of every kind and to inspect the physical properties of
the corporation.
SECTION 3.18 FEES AND COMPENSATION.
Directors shall not receive any stated salary for their services as
directors, but, by resolution of the Board, a fixed fee, with or without
expenses of attendance, may be allowed for attendance at each meeting.
Nothing herein contained shall be construed to preclude any Director from
serving the corporation in any other capacity as an officer, agent, employee
or otherwise, and receiving compensation therefor.
SECTION 3.19 LOANS TO OFFICERS.
The Board may approve loans of money or property from the corporation
to, and guaranties by the corporation of the obligations of, any officer,
whether or not a director, of the corporation,
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and may adopt employee benefit plans authorizing such loans and/or
guaranties, without the approval of the shareholders of the corporation,
provided that:
(a) the corporation has outstanding shares held of record by more than
100 persons on the date of approval by the Board;
(b) the vote for approval is sufficient without counting the vote of any
interested director or directors; and
(c) the Board determines that such loan, guaranty, or plan may reasonably
be expected to benefit the corporation.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
SECTION 4.1 EXECUTIVE COMMITTEE.
The Board of Directors may, by resolution adopted by a majority of the
authorized number of Directors, appoint an executive committee, consisting of
two or more Directors. The Board may designate one or more Directors as an
alternate member of such committee, who may replace any absent member of any
meeting of the committee. The executive committee, subject to any
limitations imposed by the California General Corporation Law, or by
resolution adopted by the affirmative vote of a majority of the authorized
number of Directors, or imposed by the Articles of Incorporation or by these
Bylaws, shall have and may exercise all of the powers of the Board of
Directors.
SECTION 4.2 OTHER COMMITTEES.
The Board of Directors may, by resolution adopted by a majority of the
authorized number of Directors, designate such other committees, each
consisting of 2 or more Directors, as it may from time to time deem advisable
to perform such general or special duties as may from time to time be
delegated to any such committee by the Board of Directors, subject to the
limitations contained in the California General Corporation Law, or imposed
by the Articles of Incorporation or by these Bylaws. The Board may designate
one or more Directors as alternate members of any committee, who may replace
any absent member at any meeting of the committee.
SECTION 4.3 MINUTES AND REPORTS.
Each committee shall keep regular minutes of its proceedings, which
shall be filed with the Secretary. All action by any committee shall be
reported to the Board of Directors at the next meeting thereof, and, insofar
as rights of third parties shall not be affected thereby, shall be subject to
revision and alteration by the Board of Directors.
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SECTION 4.4 MEETINGS.
Except as otherwise provided in these Bylaws or by resolution of the
Board of Directors, each committee shall adopt its own rules governing the
time and place of holding and the method of calling its meetings and the
conduct of its proceedings and shall meet as provided by such rules, and it
shall also meet at the call of any member of the committee. Unless otherwise
provided by such rules or by resolution of the Board of Directors, committee
meetings shall be governed by Sections 3.11, 3.12 and 3.13 of these Bylaws.
SECTION 4.5 TERM OF OFFICE OF COMMITTEE MEMBERS.
The term of office of any committee member shall be as provided in the
resolution of the Board of Directors designating him but shall not exceed his
term as a Director. Any member of a committee may be removed at any time by
resolution adopted by Directors holding a majority of the directorships,
either present at a meeting of the Board or by written approval thereof.
ARTICLE V
OFFICERS
SECTION 5.1 OFFICERS.
The officers of the corporation shall be a President, a Vice President,
a Secretary and a Treasurer, who shall be the Chief Financial Officer of the
corporation. The corporation may also have, at the discretion of the Board
of Directors, a Chairman of the Board, one or more additional Vice
Presidents, one or more Assistant Treasurers, and such other officers as may
be appointed in accordance with the provisions of Section 5.3. One person
may hold two or more offices.
SECTION 5.2 ELECTION.
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 and 5.5, shall be
chosen annually by the Board of Directors and each shall hold his office
until he shall resign or shall be removed or otherwise disqualified to serve,
or his successor shall be elected and qualified.
SECTION 5.3 SUBORDINATE OFFICERS, ETC.
The Board of Directors may appoint such other officers as the business
of the corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
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SECTION 5.4 REMOVAL AND RESIGNATION.
Any officer may be removed, either with or without cause, by a majority
of the Directors at the time in office, at any regular or special meeting of
the Board, or, except in case of an officer chosen by the Board of Directors,
by an officer upon whom such power of removal may be conferred by the Board
of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 5.5 VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed
in these Bylaws for regular appointments to such office.
SECTION 5.6 CHAIRMAN OF THE BOARD.
The Chairman of the Board, if there shall be such an officer, shall, if
present, preside at all meetings of the Board of Directors, and exercise and
perform such other powers and duties as may be from time to time assigned to
him by the Board of Directors or prescribed by these Bylaws.
SECTION 5.7 PRESIDENT.
Subject to such supervisory powers, if any, as may be given by the Board
of Directors to the Chairman of the Board, if there be such an officer, the
President shall be the general manager and chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and officers of
the corporation. He shall preside at all meetings of the shareholders. He
shall be ex officio a member of all the standing committees, including the
executive committee, if any, and shall have the general powers and duties of
management usually vested in the office of president of a corporation, and
shall have such other powers and duties as may be prescribed by the Board of
Directors or by these Bylaws.
SECTION 5.8 VICE PRESIDENT.
In the absence or disability of the President, the Vice Presidents in
order of their rank as fixed by the Board of Directors, or if not ranked, the
Vice President designated by the Board of Directors, shall perform the duties
of the President, and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the President. The Vice Presidents
shall have such other powers and perform such other duties as from time to
time may be prescribed for them respectively by the Board of Directors or
these Bylaws.
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SECTION 5.9 SECRETARY.
The Secretary shall keep, or cause to be kept, a book of minutes in
written form of the proceedings of the Board of Directors, committees of the
Board, and shareholders. Such minutes shall include all waivers of notice,
consents to the holding of meetings, or approvals of the minutes of meetings
executed pursuant to these Bylaws or the California General Corporation Law.
The Secretary shall keep, or cause to be kept at the principal executive
office or at the office of the corporation's transfer agent or registrar, a
record of its shareholders, giving the names and addresses of all
shareholders and the number and class of shares held by each.
The Secretary shall give or cause to be given, notice of all meetings of
the shareholders and of the Board of Directors required by these Bylaws or by
law to be given, and shall keep the seal of the corporation in safe custody,
and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or these Bylaws.
SECTION 5.10 TREASURER AND CHIEF FINANCIAL OFFICER.
The Treasurer and Chief Financial Officer shall keep and maintain, or
cause to be kept and maintained, adequate and correct books and records of
account in written form or any other form capable of being converted into
written form.
The Treasurer and Chief Financial Officer shall deposit all monies and
other valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the Board of Directors. He shall
disburse all funds of the corporation as may be ordered by the Board of
Directors, shall render to the President and Directors, whenever they request
it, an account of all of his transactions as Treasurer and Chief Financial
Officer and of the financial condition of the corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board of Directors or by these Bylaws.
SECTION 5.11 ASSISTANT SECRETARY.
The Assistant Secretary shall have all the powers, and perform all the
duties of, the Secretary in the absence or inability of the Secretary to act.
SECTION 5.12 COMPENSATION.
The compensation of the officers shall be fixed from time to time by the
Board of Directors, and no officer shall be prevented from receiving such
compensation by reason of the fact that he is also a Director of the
corporation.
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ARTICLE VI
MISCELLANEOUS
SECTION 6.1 RECORD DATE.
The Board of Directors may fix, in advance, a time in the future as the
record date for the determination of shareholders entitled to notice of any
meeting or to vote or entitled to receive payment of any dividend or other
distribution or allotment of any rights or entitled to exercise any rights in
respect of any other lawful action. Shareholders on the record date are
entitled to notice and to vote or receive the dividend, distribution or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares in the books of the corporation
after the record date, except as otherwise provided by law. Said record date
shall not be more than sixty (60) or less than ten (10) days prior to the
date of such meeting, nor more than sixty (60) days prior to any other action.
A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board fixes a new record date for the adjourned meeting,
but the Board shall fix a new record date if the meeting is adjourned for
more than forty-five (45) days from the date set for the original meeting.
If no record date is fixed by the Board of Directors, the record date
shall be fixed pursuant to the California General Corporation Law.
SECTION 6.2 INSPECTION OF CORPORATE RECORDS.
The accounting books and records, and minutes of proceedings of the
shareholders and the Board of Directors and committees of the Board shall be
open to inspection upon written demand made upon the corporation by any
shareholder or the holder of a voting trust certificate, at any reasonable
time during usual business hours, for a purpose reasonably related to his
interest as a shareholder, or as the holder of such voting trust certificate.
The record of shareholders shall also be open to inspection by any
shareholder or holder of a voting trust certificate at any time during usual
business hours upon written demand on the corporation, for a purpose
reasonably related to such holder's interest as a shareholder or holder of a
voting trust certificate. Such inspection may be made in person or by an
agent or attorney, and shall include the right to copy and to make extracts.
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SECTION 6.3 EXECUTION OF CORPORATE INSTRUMENTS.
The Board of Directors may, in its discretion, determine the method and
designate the statutory officer or officers, or other person or persons, to
execute any corporate instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such
execution or signature shall be binding upon the corporation. Unless
otherwise specifically determined by the Board of Directors, formal contracts
of the corporation, promissory notes, mortgages, evidences of indebtedness,
conveyances or other instruments in writing, and any assignment or
endorsement thereof, executed or entered into between the corporation and any
person, may be signed by the Chairman of the Board, the President, any Vice
President, the Secretary or the Treasurer of the corporation.
SECTION 6.4 RATIFICATION BY SHAREHOLDERS.
The Board of Directors may, subject to applicable notice requirements,
in its discretion, submit any contract or act for approval or ratification of
the shareholders at any annual meeting of shareholders, or at any special
meeting of shareholders called for that purpose; and any contract or act
which shall be approved or ratified by the affirmative vote of a majority of
the shares entitled to vote represented at a duly held meeting at which a
quorum is present, or by the written consent of shareholders, shall be as
valid and binding upon the corporation and upon the shareholders thereof as
though approved or ratified by each and every shareholder of the corporation,
unless a greater vote is required by law for such purpose.
SECTION 6.5 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The President and Vice President of this corporation are authorized to
vote, represent and exercise on behalf of the corporation all rights incident
to any and all shares of any other corporation or corporations standing in
the name of this corporation. The authority herein granted to said officers
to vote or represent on behalf of this corporation any and all shares held by
this corporation and any other corporation or corporations may be exercised
either by such officers in person or by any person authorized so to do by
proxy or power of attorney and duly executed by said officers.
SECTION 6.6 INSPECTION OF BYLAWS.
The corporation shall keep in its principal executive office in this
State the original or a copy of the Bylaws as amended or otherwise altered to
date, which shall be open to inspection by the shareholders at all reasonable
times during office hours.
SECTION 6.7 FACSIMILE SIGNATURES.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer
or officers of the Corporation may be used whenever and as authorized by the
Board of Directors or a committee thereof.
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ARTICLE VII
SHARES OF STOCK
SECTION 7.1 FORM OF CERTIFICATES.
Certificates for shares of stock of the corporation shall be in such
form and design as the Board of Directors shall determine and shall be signed
in the name of the corporation by the Chairman of the Board, or the President
or Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or any Assistant Secretary. Each certificate shall state the
certificate number, the date of issuance, the number, class or series and the
name of the record holder of the shares represented thereby, the name of the
corporation, and, if the shares of the corporation are classified or if any
class of shares has two or more series, there shall appear the statement
required by the California General Corporation Law.
SECTION 7.2 TRANSFER OF SHARES.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where
a certificate is issued in accordance with Section 7.3 of these Bylaws, an
outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
SECTION 7.3 LOST CERTIFICATES.
The Board of Directors may order a new certificate for shares of stock
to be issued in the place of any certificate alleged to have been lost,
stolen or destroyed, but in every such case, the owner or the legal
representative of the owner of the lost, stolen or destroyed certificates may
be required to give the corporation a bond (or other adequate security) in
such form and amount as the Board may deem sufficient to indemnify it against
any claim that may be made against the corporation (including any expense or
liability) on account of the alleged loss, theft or destruction of any such
certificate or issuance of such new certificate.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 INDEMNIFICATION BY CORPORATION.
Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative ("Proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the corporation or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, or was a director, officer, employee or agent of a corporation which
was a
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predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation, whether the basis of such Proceeding
is alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the corporation to the
fullest extent authorized by the California General Corporation Law, against
all expenses, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators; PROVIDED, HOWEVER,
that, except as provided in Section 8.2 of this Article VIII, the corporation
shall indemnify any such person seeking indemnity in connection with a
Proceeding (or part thereof) initiated by such person only if such Proceeding
(or part thereof) was authorized by the board of directors of the
corporation. The right to indemnification conferred by this Section shall
include the right to be paid by the corporation expenses incurred in
defending any such Proceeding in advance of its final disposition to the
fullest extent authorized by the California General Corporation Law;
PROVIDED, HOWEVER, that, if required by the California General Corporation
Law, the payment of such expenses incurred by such person in advance of the
final disposition of such Proceeding shall be made only upon delivery to the
corporation of an undertaking, by or on behalf of such person, to repay all
amounts so advanced if it should be determined ultimately that such person is
not entitled to be indemnified under this Section or otherwise.
SECTION 8.2 RIGHT OF CLAIMANT TO BRING SUIT.
If a claim under Section 8.1 of this Article VIII is not paid in full by
the corporation within ninety (90) days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring
suit against the corporation to recover the unpaid amount of the claim and,
if successful in whole or in part, the claimant shall be entitled to be paid
also the expense of prosecuting such claim. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any Proceeding in advance of its final disposition
where the required undertaking, if any, has been tendered to the corporation)
that the claimant has not met the standards of conduct which make it
permissible under the California General Corporation Law for the corporation
to indemnify the claimant for the amount claimed. Neither the failure of the
corporation (including its board of directors, independent legal counsel, or
it shareholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of conduct
set forth in the California General Corporation Law, nor an actual
determination by the corporation (including its board of directors,
independent legal counsel, or its shareholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant has not met the applicable standard of
conduct.
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SECTION 8.3 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION.
The corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and to the advancement
of expenses to any employee or agent of the corporation to the fullest extent
of the provisions of this Article with respect to the indemnification of and
advancement of expenses to directors and officers of the corporation.
SECTION 8.4 RIGHTS NOT EXCLUSIVE.
The rights conferred on any person by this Article VIII above shall not
be exclusive of any other right which such person may have or hereafter
acquire under any statute, provision of the Articles of Incorporation, Bylaw,
agreement, vote of shareholders or disinterested directors or otherwise.
SECTION 8.5 INDEMNITY AGREEMENTS.
The Board of Directors is authorized to enter into a contract with any
Director, officer, employee or agent of the corporation, or any person who is
or was serving at the request of the corporation as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, including employee benefit plans, or any person who was
a director, officer, employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation, providing for indemnification rights
equivalent to or, if the Board of Directors so determines, greater than,
those provided for in this Article VIII.
SECTION 8.6 INSURANCE.
The corporation may purchase and maintain insurance, at its expense, to
protect itself and any Director, officer, employee or agent of the
corporation or another corporation (including a predecessor corporation),
partnership, joint venture, trust or other enterprise against any such
expense, liability or loss, whether or not the corporation would have the
power to indemnify such person against such expense, liability or loss under
the California General Corporation Law.
SECTION 8.7 AMENDMENT, REPEAL OR MODIFICATION.
Any amendment, repeal or modification of any provision of this Article
VIII by the shareholders or the Directors of the corporation shall not
adversely affect any right or protection of a Director or officer of the
corporation existing at the time of such amendment, repeal or modification.
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ARTICLE IX
AMENDMENTS
SECTION 9.1 POWER OF SHAREHOLDERS.
New Bylaws may be adopted or these Bylaws may be amended or repealed by
the affirmative vote of a two-thirds majority of the outstanding shares
entitled to vote or by the written consent thereof, except as otherwise
provided by law or by the Articles of Incorporation.
SECTION 9.2 POWER OF DIRECTORS.
Subject to the right of shareholders as provided in Section 9.1 of these
Bylaws, Bylaws other than a Bylaw or amendment thereof specifying or changing
the authorized number of Directors, or the minimum or maximum number of a
variable Board of Directors, or changing from a fixed to a variable Board of
Directors or vice versa, may be adopted, amended or repealed by a unanimous
vote of the Board of Directors.
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CERTIFICATE OF SECRETARY
I hereby certify that I am the duly elected and acting Secretary of bebe
stores, inc., a California corporation and that the foregoing Bylaws, comprising
eighteen (18) pages, constitute the Bylaws of said corporation as duly adopted
by the Board of Directors.
IN WITNESS WHEREOF, I have hereunder subscribed my name this 18th day of
May, 1998.
/s/ Paul Mashouf
-------------------------------------
Paul Mashouf, Secretary
<PAGE>
FORM OF INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into as of April __, 1998 by and
between bebe stores, inc., a California corporation (the "Corporation"), and
__________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as a ____________ of the Corporation;
WHEREAS, the shareholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at
the request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the California General Corporation Law, as
amended (the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its directors, officers, employees and
other agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve in the capacity
set forth above, the Corporation has determined and agreed to enter into this
Agreement with Agent.
NOW, THEREFORE, in consideration of Agent's continued service in the
capacity set forth above after the date hereof, the parties hereto agree as
follows:
AGREEMENT
1. SERVICE TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as a
director, officer or agent of the Corporation or as a director, officer or
other fiduciary of an affiliate of the Corporation (including any employee
benefit plan of the Corporation) faithfully and to the best of his ability so
long as he is duly elected and qualified in accordance with the provisions of
the Bylaws or other applicable charter documents of the Corporation or such
affiliate; provided, however, that Agent may at any time and for any reason
resign from such position (subject to any contractual obligation that Agent
may have assumed apart from this Agreement) and that the Corporation or any
affiliate shall have no obligation under this Agreement to continue Agent in
any such position.
2. MAINTENANCE OF LIABILITY INSURANCE.
(a) The Corporation hereby covenants and agrees that, so long as
the Agent shall continue to serve as an agent of the Corporation and
thereafter so long as the Agent shall be subject to any possible action, suit
or proceeding by reason of the fact that the Agent was an agent of the
Corporation, the Corporation, subject to Section 2(c), shall promptly obtain
and
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maintain in full force and effect directors' and officers' liability
insurance ("D&O Insurance") in reasonable amounts from established and
reputable insurers.
(b) In all policies of D&O Insurance, the Agent shall be named as
an insured in such a manner as to provide the Agent the same rights and
benefits as are accorded to the most favorably insured of the Corporation's
directors, if the Agent is a director; or of the Corporation's officers, if
the Agent is not a director of the Corporation but is an officer; or of the
Corporation's key employees, if the Agent is not an officer or director but
is a key employee or other agent.
(c) Notwithstanding the foregoing, the Corporation shall have no
obligation to obtain or maintain D&O Insurance if the Corporation determines
in good faith that such insurance is not reasonably available, the premium
costs for such insurance are disproportionate to the amount of coverage
provided, the coverage provided by such insurance is limited by exclusions so
as to provide an insufficient benefit, or the Agent is covered by similar
insurance maintained by a subsidiary of the Corporation.
3. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provision of the Bylaws and the Code.
4. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 5 hereof, the Corporation hereby further
agrees to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and
any other amounts that Agent becomes legally obligated to pay because of any
claim or claims made against or by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative (including an action by or in
the right of the Corporation) to which Agent is, was or at any time becomes a
party, or is threatened to be made a party, by reason of the fact that Agent
is, was or at any time becomes a director, officer, employee or other agent
of the Corporation, or is or was serving or at any time serves at the request
of the Corporation as a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, or was a director, officer, employee or agent of a
corporation which was a predecessor corporation of the Corporation or of
another enterprise at the request of such predecessor corporation; and
(b) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of Article VIII of the
Bylaws and the Code.
5. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 4 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the
Corporation pursuant to the provisions of
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Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto
or similar provisions of any federal, state or local statutory law;
(b) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity
clause, by-law or agreement, except in respect of any excess beyond payment
under such insurance, clause, by-law or agreement;
(c) if indemnification is not lawful (and, in this respect, both
the Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication);
(d) in connection with any proceeding (or part thereof) initiated
by Agent, or any proceeding by Agent against the Corporation or its
directors, officers, employees or other agents, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding
was authorized by the Board of Directors of the Corporation, (iii) such
indemnification is provided by the Corporation, in its sole discretion,
pursuant to the powers vested in the Corporation under the Code, or (iv) the
proceeding is initiated pursuant to Section 10 hereof;
(e) on account of Agent's acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law;
(f) on account of Agent's acts or omissions that Agent believes to
be contrary to the best interests of the Corporation or its shareholders or
that involve the absence of good faith on the part of the Agent;
(g) in respect of any action brought by or in the right of the
Corporation for breach of Agent's duties to the Corporation and its
shareholders:
(i) on account of any transaction from which Agent derived an
improper personal benefit.
(ii) on account of Agent's acts or omissions that show a
reckless disregard for the Agent's duty to the Corporation or its
shareholders in circumstances in which Agent was aware, or should have been
aware, in the ordinary course of performing Agent's duties, of a risk of
serious injury to the Corporation or its shareholders.
(iii) on account of Agent's acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication
of Agent's duty to the Corporation or its shareholders.
(iv) on account of any liability of Agent under Section 310 of
the Code.
(v) on account of any liability of Agent under Section 316 of
the Code.
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(vi) on account of any act or omission of Agent occurring
prior to the date when a provision in the Corporation's Articles of
Incorporation eliminating or limiting the personal liability of the
Corporation's directors for monetary damages in actions brought by or in the
right of the Corporation, as authorized by Section 204(a)(10) of the Code,
first became effective;
(h) in respect of any action by or in the right of the Corporation
to procure a judgment in its favor:
(i) in respect of any claim, issue or matter as to which
Agent shall have been adjudged to be liable to the Corporation in the
performance of Agent's duty to the Corporation and its shareholders, unless
and only to the extent that the court in which such proceeding is or was
pending shall determine upon application that, in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for expenses and then only to the extent the court shall determine.
(ii) of amounts paid in settling or otherwise disposing of a
pending action without court approval.
(iii) of expenses incurred in defending a pending action
which is settled or otherwise disposed of without court approval; or
(i) except as provided in subdivision (d) or paragraph (4) of
subdivision (e) of Section 317 of the Code, in any circumstance where it
appears:
(i) that it would be inconsistent with a provision of the
Corporation's Articles of Incorporation or By- laws, a resolution of the
Corporation's shareholders or an agreement in effect at the time of the
accrual of the alleged cause of action asserted in the proceeding in which
the expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification.
(ii) that it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
6. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise) and shall continue thereafter so
long as Agent shall be subject to any possible claim or threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative, by reason of the fact that
Agent was serving in the capacity referred to herein.
7. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and
amounts paid in settlement and any other amounts that Agent becomes legally
obligated to pay in connection with any action, suit or proceeding
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referred to in Section 4 hereof even if not entitled hereunder to
indemnification for the total amount thereof, and the Corporation shall
indemnify Agent for the portion thereof to which Agent is entitled.
8. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
(a) Promptly after receipt by the Agent of notice of the
commencement of or the threat of commencement of any action, suit or
proceeding, the Agent shall, if the Agent believes that indemnification with
respect thereto may be sought from the Corporation under this Agreement,
notify the Corporation of the commencement or threat of commencement thereof;
provided, however, that failure of Agent to provide such notice will not
relieve the Corporation of its liability hereunder if the Corporation
receives notice of such action, suit or proceeding from any other source.
(b) If, at the time of the receipt of a notice of commencement of
an action, suit or proceeding pursuant to Section 8(a) hereof, the
Corporation has D&O Insurance in effect, the Corporation shall give prompt
notice of the commencement of such action, suit or proceeding to the insurers
in accordance with the procedures set forth in the respective policies. The
Corporation shall thereafter take all necessary or desirable action to cause
such insurers to pay, on behalf of the Agent, all amounts payable as a result
of such action, suit or proceeding in accordance with the terms of such
policies.
(c) In the event the Corporation shall be obligated to pay the
expenses of any action, suit or proceeding against the Agent, the
Corporation, if appropriate, shall be entitled to assume the defense of such
action, suit or proceeding, with counsel approved by the Agent, upon the
delivery to the Agent of written notice of its election so to do. After
delivery of such notice, approval of such counsel by the Agent and the
retention of such counsel by the Corporation, the Corporation will not be
liable to the Agent under this Agreement for any fees of counsel subsequently
incurred by the Agent with respect to the same action, suit or proceeding
except for reasonable costs of investigation, provided that (i) the Agent
shall have the right to employ his counsel in any such action, suit or
proceeding at the Agent's expense; and (ii) if (A) the employment of counsel
by the Agent has been previously authorized by the Corporation, (B) the Agent
shall have reasonably concluded that there may be a conflict of interest
between the Corporation and the Agent in the conduct of any such defense or
(C) the Corporation shall not, in fact, have employed counsel to assume the
defense of such action, suit or proceeding, the fees and expenses of Agent's
counsel shall be at the expense of the Corporation.
(d) the Corporation shall not be liable to indemnify Agent under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably
withheld. The Corporation shall be permitted to settle any action except
that it shall not settle any action or claim in any manner which would impose
any penalty or limitation on Agent without Agent's written consent, which may
be given or withheld in Agent's sole discretion.
9. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all
expenses incurred by Agent in connection
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with such proceeding upon receipt of an undertaking by or on behalf of Agent
to repay said amounts if it shall be determined ultimately by a court of last
resort that Agent is not entitled to be indemnified under the provisions of
this Agreement, the Bylaws, the Code or otherwise; provided, however, that no
advance shall be paid by the Corporation in circumstances in which no
indemnity shall be payable by the Corporation under Section 5(i) hereof.
10. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. Agent, in such
enforcement action, if successful in whole or in part, shall be entitled to
be paid also the expense of prosecuting his claim. It shall be a defense to
any action for which a claim for indemnification is made under Section 4
hereof (other than an action brought to enforce a claim for expenses pursuant
to Section 9 hereof, provided that the required undertaking has been tendered
to the Corporation) that Agent is not entitled to indemnification because of
the limitations set forth in Section 5 hereof. Neither the failure of the
Corporation (including its Board of Directors or its shareholders) to have
made a determination prior to the commencement of such enforcement action
that indemnification of Agent is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of Directors or its
shareholders) that such indemnification is improper shall be a defense to the
action or create a presumption that Agent is not entitled to indemnification
under this Agreement or otherwise.
11. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
the Corporation effectively to bring suit to enforce such rights.
12. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Articles
of Incorporation or Bylaws, agreement, vote of shareholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
13. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of
the Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to
the benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such
succession had taken place.
6
<PAGE>
14. INTERPRETATION OF AGREEMENT. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Agent to the fullest extent permitted by law.
15. SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, (i) the validity, legality and enforceability of the remaining
provisions of the Agreement (including without limitation, all portions of
any paragraphs of this Agreement containing any such provision held to be
invalid, illegal or unenforceable, that are not themselves invalid, illegal
or unenforceable) shall not in any way be affected or impaired thereby, and
(ii) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, all portion of any paragraph of this
agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable and to give effect to
Section 14 hereof.
16. SUCCESSORS AND ASSIGNS. The terms of this Agreement shall bind,
and shall inure to the benefit of, the successors and assigns of the parties
hereto.
17. GOVERNING LAW. This Agreement shall be governed exclusively by and
construed according to the laws of the State of California as applied to
contracts between California residents entered into and to be performed
entirely within California.
18. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed
by both parties hereto.
19. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the
existence of this Agreement.
20. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
21. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication
was directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with
postage prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to
bebe stores, inc.
380 Valley Drive
Brisbane, CA 94005
7
<PAGE>
or to such other address as may have been furnished to Agent by the
Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
bebe stores, inc.
By
-----------------------------
Title
---------------------------
AGENT
--------------------------------
[Name]
Agent Address:
--------------------------------
--------------------------------
8
<PAGE>
EXHIBIT 11.1
STATEMENT OF COMPUTATION OF NET EARNINGS PER SHARE
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended Year Ended Year Ended
Mar-98 Jun-97 Jun-96 Jun-95
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average shares of common stock outstanding
used to compute basic net earnings per share 22,639,997 22,639,997 22,639,997 22,639,997
Add common stock equivalents issued or granted 1,065,315 10,874 -- --
------------ ------------ ------------ ------------
Shares used to compute diluted net earnings per share 23,705,312 22,650,871 22,639,997 22,639,997
Net earnings $ 12,542,061 $ 5,149,519 $ 73,643 $ 5,482,907
Basic net earnings per share $ 0.55 $ 0.23 $ 0.00 $ 0.24
Diluted net earnings per share $ 0.53 $ 0.23 $ 0.00 $ 0.24
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
Board of Directors
bebe stores, inc.
We consent to the use in this Amendment No. 1 to the Registration Statement
No. 333-50333 of bebe stores, inc. on Form S-1 of our report dated May 6, 1998,
appearing in the Prospectus, which is a part of this Registration Statement, and
to the references to us under the headings "Selected Financial and Operating
Data" and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of bebe stores, inc.,
listed in Item 16(b). This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Deloitte & Touche LLP
San Francisco, California
May 14, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ________ AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997
<PERIOD-END> MAR-31-1998 JUN-30-1997
<CASH> 22741554 9191919
<SECURITIES> 0 80390
<RECEIVABLES> 365324 430903
<ALLOWANCES> 46851 76668
<INVENTORY> 11016322 9461698
<CURRENT-ASSETS> 35618241 19626360
<PP&E> 13852681 12104516
<DEPRECIATION> 5784700 4565055
<TOTAL-ASSETS> 46220029 29109294
<CURRENT-LIABILITIES> 15417371 11351159
<BONDS> 0 0
0 0
0 0
<COMMON> 22640 22640
<OTHER-SE> 28339010 15271943
<TOTAL-LIABILITY-AND-EQUITY> 46220029 29109294
<SALES> 108072493 95086125
<TOTAL-REVENUES> 108072493 95086125
<CGS> 53757891 53968849
<TOTAL-COSTS> 33558889 32648788
<OTHER-EXPENSES> 126537 114175
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (628555) 94809
<INCOME-PRETAX> 21257731 8259504
<INCOME-TAX> 8715670 3109985
<INCOME-CONTINUING> 12542061 5149519
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 12542061 5149519
<EPS-PRIMARY> 0.55 0.23
<EPS-DILUTED> 0.53 0.23
</TABLE>
